Have you been charged Payment protection insurance on a current or previous loan?
One of the biggest mis-selling scandals of recent years has been those relating to the provision of payment protection insurance (PPI) on loan products sold by major financial institutions.
On the surface, PPI is a really good product for certain types of people or situations. In essence, it provides financial compensation sufficient to cover the loan repayments for up to a year in the event that you lose your job or are unable to work due to illness or redundancy. Seems like a pretty good protection and not dissimilar to a mortgage life policy that pays off the balance on the loan in the event of your death.
However, it was not the basic product that has been the root cause of all the problems, but rather the way that it has been sold to customers.
The dilemma was that major financial institutions such as banks and building societies faced high levels of competition on their vanilla loan products. Headline rates are a key determinant in people's choice of provider and so the advertised deals were very competitive. To compensate, the commission that could be earned by selling a PPI policy alongside a loan was significant and the pressures on staff to sell them became strong.
This led to a range of situations where PPI was sold badly, and wrongly. Some companies made the provision of PPI as a condition of granting the loan. These are a separate contract, and making one a condition of the other should never have happened. In other situations, the PPI policy had a maximum life of 5 years but it was sold alongside loans with greater terms, meaning that the loan payments were not covered in the later years as had been inferred. PPI has also been sold alongside credit and store cards, car and furniture loan applications.
Perhaps the worst cases of mis-selling were to customers where the PPI cover was not valid from the outset. This was particularly the case where the borrower was self employed, too old (typically over 65) or had pre-existing medical conditions that made any future claim doomed to fail.
In some cases, customers simply were not told that PPI had been added to their loan repayments and were unaware that they had the benefit of cover. In some cases this led to no partial rebate of PPI premiums when loans were repaid early.
Not surprisingly, the Office of Fair Trading investigated the selling practices of PPI and found that many were sold wrongly. They estimated that only one in five claims on PPI policies were successful and that the policies represented extremely poor value for money. This led to a situation where existing policyholders (who had bought since January 2003) could seek financial compensation from the original lenders. As a consequence, there have been thousands of claims leading to millions of pounds being paid out in compensation to customers. The findings were so critical that customers did not have to prove that they were mis-sold the PPI, since it had been recognised by some that their selling procedures were at fault and compensation was quickly paid to all customers who claimed.
The rulings go back to cover any product sold since January 2005. It may, however, be worth making a claim for earlier PPI sales since some companies have accepted the principle for earlier misdemeanour's. Sales prior to 2005 were covered by a different set of rules, but the Financial Ombudsman Service will consider any valid claim.
So check if you have been sold a PPI in the past 5 years and, if you have, get in touch with your lender. There are many website services that offer to assist in this process, for a fee, although there are many free sources of information that provide claim form template's and explain the claiming process. If you need help determining whether you have been sold a PPI policy, then free help and assistance is available at your local Citizens Advice Bureau.
There are reputable and better value PPI policies available to buy. They do not have be bought at the same time as any loan product but you should make clear any conditions that could exempt you from making a valid claim (usually pre-existing medical conditions or existing knowledge regarding potential redundancy). Since all sales are now regulated by the Financial Services Authority, the seller will explain, in full, what the cover is and the extent of compensation that you would be eligible to claim, should the need arise.