PPI or Payment Protection Insurance is very much in the news right now with adverts on television, radio, billboards, spam emails and even spam texts. The latter can be very annoying as texts are sent out to hundreds, maybe thousands of numbers indicating that the recipient definitely has a refund of money to come due to miss-sold PPI. The facts surrounding PPI are a minefield with customers not fully understanding how it was sold to them or even if they had it sold to them. Understanding what PPI is and if you have it, or had it, what you can do about it, is essential plus is something that all borrowers need to investigate fully.
The first thing that borrowers need to be aware of regarding Payment Protection Insurance is that it falls under numerous headings including Credit Insurance, Credit Protection Insurance and Loan Repayment Insurance. This kind of insurance means that consumers who are unfortunate, in that they cannot repay their loan because of ill health, disablement, death or maybe redundancy have their payments insured giving peace of mind.
PPI is sold by providers of credit and banks while it is added to the loan repayments to be paid back, along with the loan, to the lender. PPI can be added to loans for cars, finance company loans plus mortgages, while some credit cards also have a type of PPI too that is standard. Some policies also cover specific risks such as accident insurance or disability insurance. If the PPI needs to be used by the borrower the claim benefit goes to the lender even though it is the borrower who has made all the payments.
PPI normally would cover a loan for around twelve months giving the borrower time to find a new job or recover from an illness that may have befallen them. Deciding if PPI is appropriate for individual borrowers is a difficult assessment to make as most people’s circumstances differ so much. There is a lot to think about when considering taking out PPI rendering customers rather helpless if they are not in the know so to speak, while millions of PPI policies had been sold by the mid two thousands.
So, Why is There Controversy Surrounding PPI?
When it comes to taking out insurance customers realise that in some cases making a claim will be rejected for some reason or other. We all know that we need to read the small print to make sure there are no clauses whereby we would not be able to make a claim. For example if you take out contents cover you have to decide whether to take out accidental damage cover, name specific expensive items plus check what the excess would be in the event of a claim.
It has been found with PPI that statistically there have been far more rejected claims than with any other type of insurance. The three main reasons for this are,
- The insurance was not underwritten at the point of sale
- Customers did not fully understand whether they would benefit from PPI or if it suited their purpose
- The policy was taken out without understanding the eligibility facts
With most insurance if you did not take advice as to how it would benefit you it is your own fault but with PPI it is very different. Consumers in most cases do not seek to take out PPI they are given it with some customers (40%) even stating that they did not know it had been added to their loans. This is due to the fact of PPI being sold to them in conjunction with the loan at the same time.
The terms and conditions of PPI tended to be very strict adding to their unpopularity. Such exclusion clauses as not paying out on the first thirty days would mean that in terms of a mortgage payment you would probably miss one month’s mortgage before you would qualify to claim. Stress and back pain were commonly excluded from reasons to claim while students and self employed would find it hard to get cover at all.
Complaints regarding PPI being miss-sold were not dealt with adequately for at least ten years with the main culprits of miss-selling being high street banks, one of which sold over £400 million PPI products making them huge profits as the product has an 80% profit margin. This meant that banks made more money from selling PPI than the interest they made on the actual loans the PPI insured. The whole thing was scandalous as companies would make sure that sellers would tell borrowers their loan was covered by insurance without actually telling them it was at a cost or that they would not qualify for the loan if they didn’t have PPI. The fact that they were on sales commission probably encouraged this.
Many prominent financial institutions have been fined huge amounts by the Financial Services Authority (FSA) due to their miss-selling of PPI. They include:
Customers may contact their lender if they think they may have been miss-sold PPI to make a claim. The rules governing the sale of such policies has been greatly tightened up to ensure that consumers know all the facts, that they look around for the most suitable product plus lenders cannot sell PPI at the same time as the consumer takes out the loan. Lenders have to wait at least seven days after the credit sale to sell PPI in future. The Competition Commission has enforced a final order to introduce competition into the sales market dealing with PPI. Single premium PPI is also now banned plus lenders have to submit details of the cost and level of cover provided by the policy to the purchaser.
Consulting the Financial Ombudsman
It may not be widely known that the Financial Ombudsman will look at disputes surrounding PPI claims and refunds but they do have a wealth of advice plus they will look into complaints while trying to solve the dispute along the way. There are three main areas that the ombudsman covers, they are,
- Where a claim against the PPI policy is made but is turned down maybe due to small print exclusions unknown to the borrower.
- Miss-sold policies disputes where consumers did not know they were taking out PPI or that they did not have the policy explained to them properly meaning they did not know it was suitable for their needs.
- Where a consumer paid for PPI up front in one lump sum meaning if the loan is paid off early they do not get a full refund of the money they paid for PPI.
Your first port of call should always be the company that sold you the PPI as they may be willing to help but if not the Financial Ombudsman will fight your corner to try to bring about an agreement suited to both the lender and the borrower. The Ombudsman is totally independent and is not connected to the FSA or the OFT.
Advice the Financial Ombudsman can give includes,
Who do I contact first if I think I have been miss-sold PPI?
What to do if you were not aware that PPI was sold to you
What to do regarding a PPI refund if you paid a loan off early
Debt problems surrounding PPI payments
The Financial Ombudsman can be contacted at http://www.financial-ombudsman.org.uk/
Am I Eligible for PPI Compensation?
We all hate to think that when we bought a product or service we were duped into buying something wholly unsuitable or we did not actually need it in the first place. Now that it is possible to claim compensation for the miss-selling of PPI consumers need to find out if they are eligible. So before you go any further think about the following,
When you took out your loan did the lender tell you that taking out PPI cover was mandatory or compulsory? If they lead you to believe that you could not get a loan without taking out PPI or that it was necessary then you are entitled to claim a refund.
At the time of purchase were you unemployed? If you were then you are entitled to a refund as it is the lenders responsibility to make sure that you are in work at the time of purchase.
Did the seller go through all the details with you explaining them thoroughly? As it has come to light that many companies purposely misled clients omitting details or not explaining facts regarding cost then if this is the case you are entitled to a refund.
Once you have thought about all the above facts finding that maybe one or all of them apply to you then you can go ahead to make your claim. There is no set time limit as to how long you have to make a claim. Figures have been bandied around such as up to the last six years since you took out the PPI but you may be able to claim for much longer back than that if it is felt that you were miss-sold the product so it is always worth enquiring.
Cold Calling and PPI Claims
There are companies out there who will cold call consumers regarding making a claim for miss-sold PPI. You may receive a call on your mobile, house phone or receive a text making you wonder how these people got hold of your number in the first place. It’s a hard fact but companies do pass on your details to one another meaning if you recently applied for insurance or loans your details may have been shared. These companies will then get agents to cold call you to ask questions regarding PPI to find out if you may be eligible.
Companies you will deal with must be registered with the Ministry of Justice so check first before you give any details over or pay any upfront fees. There are many companies that will deal with your claim on your behalf on a no win no fee basis. These companies will not ask for money up front but only require a fee when they have won your claim for you. At the end of the day it is your decision as to whether you wish to go ahead and make a claim so do not be pressurised by anyone into making a quick decision. Make an informed choice ensuring that the company you have chosen has a good reputation by checking into their background or reading up on them.
Use A PPI Claims Company or Make a Claim Myself?
When it comes to officialdom many people freeze with anxiety wishing for others to represent them when claiming back PPI that has been miss-sold. It is a matter of opinion which is the best way to go with some advising go it alone while others say use a good reputable company to represent you so taking the worry out of making your claim. It is actually up to the individual while as long as you have investigated your representative thoroughly it can work out for the best either way. So which way will you go? Many believe that it is worth an eventual fee to be able to put the work in the lap of a representative. After all you will be receiving money that you did not expect to have so losing a small portion for a service is worth it isn’t it?
Claims companies will only do the same as you would do yourself when it comes to claiming compensation for miss-sold PPI. You really need to be careful so that you use a reputable company when claiming. Most companies operate a no win no fee system so there is no need to put any money upfront at all. Most companies charge 25% of what you are refunded which is a lot but worth it if you don’t want the hassle. Many people who make the claim themselves say it is not a hassle but a simple process. So if you want to keep all your refund then do it yourself. If you are short on time or dread financial problems then taking the representation route is probably for you.
- Look out for any hidden charges such as admin charges made by your representative company by reading the small print and asking as many questions you can think of.
- Make sure you know their fees. Do you have to pay if your claim does not succeed? What percentage will you pay if you do succeed? Get a solicitor to look over the paperwork if you are not happy.
- Find out about the people working in your chosen company. Where did they train and who trained them? How many successes have they had?
- Make sure your company choice is looked over by the Ministry of Justice.
Places that you can get free help regarding claiming miss-sold PPI are as follows:
Citizens Advice Bureau Advice Guide where they will guide you through the process. They have a template letter for consumers to use to make a claim. For advice regarding the cancellation of PPI policies click the link.
The Money Advice Service: This website has comprehensive advice regarding financial matters including PPI.
The Money Saving Expert: This website will guide you through making a PPI claim yourself.
If you want to find out more about what PPI Claims companies are supposedly offering and why you should be cautious of their offers - read our article - 'PPI Claims Companies: Rogues Rascals'.