In April 2011 a group of UK banks lost an important court case in which they challenged the rights of consumers to file claims for mis-sold payment protection insurance (PPI). The loss opened a door for all who believed they were victimised by a bank to file a substantial claim.
Since that time, the UK banking industry has been made out to be terrible villains that purposely misled and stole from innocent victims. Nevertheless, while the banks certainly do bear a lot of responsibility for this mess, consumers are not completely innocent. Neither is the government. Intellectual honesty requires that we sort out the information and assign the proper amount of blame where it's due.
History of PPI in the UK
Payment protection insurance (PPI) was a product first introduced in the UK at the turn-of-the-century. The idea behind PPI was to offer consumers an insurance policy that would protect them in case they were unable to make good on loans or credit cards in the event of an illness, injury, or accidental death.
The idea seemed like a good one in that it offered some measure of financial protection and peace of mind to consumers. From the perspective of the banks, PPI provided a way to offset low margin loan programs through insurance policies that were almost entirely profit.
According to a timeline offered by The Telegraph, there was very little consumer concern about PPI products in the early years. It was not until the Financial Services Authority (FSA) got involved in 2005 that questions started to be asked. Once the questions started, however, they gradually increased until reaching a boiling point in 2008.
The Telegraph reported that official investigations were launched and companies started seeing fines for apparently mis-selling PPI products. The rest, as they say, is history.
The Heart of the Issue
At the heart of the issue, according to the FSA, is that banks knowingly sold payment protection insurance to customers who either did not need it, or would never benefit from it in proportion to the amount of money they were paying. The FSA further asserts that some banks sold PPI programs without ever disclosing them to customers.
For example, a common complaint might involve a customer that purchased PPI protection on a consumer loan by simply having the added amount included in their monthly payment, only to find out later that they were already covered under a program provided by their employer. For them, PPI was useless insurance.
In other cases, the terms and actual value of PPI policies were not enough to make any real difference in the event someone was unable to make loan payments for any extended amount of time. An example would be someone out of work for more than a year due to injury having purchased a PPI policy with benefits that expire after six months.
In order to combat such practices, the FSA enacted regulations earlier this year that now prevent banks from selling PPI to customers at the same time they are obtaining credit. Furthermore, lenders cannot force consumers to purchase PPI from them. Consumers can choose any provider should they decide PPI is something the need.
While the banks have largely surrendered and assumed responsibility for the PPI "scandal," they still assert there is some blame to lay at the feet of consumers. This is a legitimate assertion. The previous example of the individual who purchased PPI protection when they did not need it is actually a true story.
As reported by The Guardian the person’s employer provided them sick pay that would have made PPI unnecessary in all likelihood. What The Guardian does not point out, and what seems to be missing from the entire discussion, is the fact that the sick pay offered by the employer was no secret. The person could have, and should have, known about it before they ever applied for the consumer loan.
Furthermore, the FSA is now recommending that consumers be diligent about reading PPI policy details and comparing quotes before purchasing a policy. Why did it take a scandal of this size before the FSA started making such recommendations? Why did it take a scandal of this size before consumers started exercising common sense and scrutinising the details?
As stated previously, the banks certainly bear their portion of the blame for the entire mess. However, consumers and the FSA are equally culpable. To simply blame the banks and extract financial compensation is to be shortsighted and not really solve any issues.
Current Claim Levels
At the last count, PPI claims had risen to about $12 billion. Estimates suggest as many as 34 million loans and other credit vehicles are somehow linked to mis-sold PPI policies. Those numbers will probably only continue rising thanks to the efforts of third party claim companies digging as hard as they can to find new claimants.
According to The Guardian report, about 40% of all PPI claims filed thus far are being handled by third-party claim companies working on behalf of consumers. Those consumers pay a portion of the claim to the company they hire as compensation for the services provided.
It is troubling that very few are asking questions of these claim companies and their practices. If it is true that greedy banks are willing to mis-sell PPI policies in order to line their own pockets, is it not reasonable to assume claim companies would be equally unscrupulous? They should not be regarded as knights in shining armour; rather, they should be scrutinised just as harshly as the banks.
The banks have largely resigned themselves to the reality that public perception will never allow them to win the argument at any level. It's far better for institutions like Barclays, HSBC, and RBS to simply lay down, pay out as many claims as they can, and put it behind them.
What is the lesson in all of this? Poor financial management is the domain of everyone involved. If the banks, consumers, and government had all acted responsibly then this never would have happened.
We have written a guide on PPI to help you with any claims.
If you have a legitimate PPI claim, there are also companies willing to help you seek redress. Here are some you might find helpful:
PPI UK - This website not only provides help in filing a claim, it also offers a lot of information to help consumers understand the PPI issue and how to choose the correct course of action.
Gladstone Brookes Ltd. - Since the start of the year, Gladstone Brooks has recovered £103 million for UK PPI claims. The Cheshire-based business promises to never cold call for new clients.
PPI Claims Company - Lancashire-based claims company helping consumers understand and file PPI claims. They offer a "no-win, no fee" guarantee.
Dr. PPI - Dr. PPI is a claim service offered by Leslie Charles Solicitors. Their 10% fee is only applied if you win your claim.
Missold PPI Claims - This company markets themselves as the UK's number one PPI reclaim service. They offer quick service and claim 90% of their claims are settled in nine weeks or less.
PPI Claims Management - This site is maintained by Crawley-based Simplicity Claims Limited. They offer an online application to help you get your claim started as quickly as possible.
We Claim U Gain - Website offering online claim filing and the promise of quick service. Their highest claim to date is £76,000.
Payment Protection Insurance is still a legitimate product despite the UK scandal. The following links are for websites offering PPI comparisons:
Gocompare.com - Compare PPI rates among several companies by submitting one simple form. Their preferred provider is PMI Partners.
Moneysupermarket.com - Money Supermarket gives customers the opportunity to compare PPI quotes among 70 providers.
Comparethemarket.com - Several PPI options are available here. Consumers can choose the amount of cover they need whether just to protect their mortgages or provide additional income for paying bills.
Moneysavingexpert.com - PPI insurance is not available here, but you will find in-depth information about the PPI scandal and what you can do if you have been negatively affected by it.