A guide to PPI and how to reclaim your premiums
PPI is a type of insurance policy which assists the borrower with repaying their loan if they are unable to work. Millions of payment protection plans have been sold in the UK over the last few years.
PPI is now a big talking point. This is due to the fact that the public now realise that such policies were widely mis-sold. After the scandal of the endowment mis-selling of the 1990s we are faced with yet again another scandal and the problem appears to be a lot more widespread. It appears that many financial institutions have not learned the lesson of past indiscretions.
So why is everyone talking about PPI? Well, the fundamental problem with PPI is that it is an expensive and inflexible insurance policy. Single premium PPI is added to loans at the outset. What this means is that consumers are having to pay interest on top of the loan and the insurance policy.
When selling insurance to consumers, financial institutions should give them the full facts, especially if it influences their decision to buy the policy. One of the fundamental disadvantages of single premium PPI is the cost of the product. Instead of one monthly affordable payment, consumers are having to borrow more to pay for the insurance. What’s more, if the customer wants to terminate the loan early, they lose a lot of the money that has been paid into the insurance policy.
Another reason why PPI was mis-sold is that many of these loans last longer than the insurance policy. This means that anyone taking out a longer loan, say 180 months, would only be covered by the PPI for the first 60 months of the loan. The consumer would then be left without cover for the rest of the loan period.
Another fundamental problem with PPI is that it only pays out in specific circumstances. Some medical conditions are excluded, especially pre-existing medical conditions known to the customer at the point of sale. In addition to all this, if you weren’t on a full time permanent contract, it could be difficult to claim for unemployment.
Having said all this, the problem doesn’t simply lie with the nature of the policy itself, but the way it was sold to customers. One issue that has cropped up time and time again is that customers were under the impression that unless their took the insurance policy out their loan application would be unsuccessful. People who take out loans often need the money urgently so they have less time to energy to combat any pressurised sales.
The FSA has cracked down on the sale of payment protection insurance. It wrote to major lenders in February 2009 asking them to withdraw the sale of the product as soon as possible and no later than 29 May 2009. The regulator is focussed on how the product is sold and whether the sales process is fair to consumers.
More recently, the FSA has increased its role as regulator. It has issued new guidance regarding the way lenders are treating complaints about PPI and has also ordered a review of previously rejected complaints.
Several lenders have already received fines from the FSA due to the poor sales practices. Now other major lenders are taking steps to improve their processes to avoid the wrath of the FSA.
Instead of buying a single premium policy it is possible to buy a standalone policy. These policies tend to have less onerous conditions for making a claim and also tend to be a lot cheaper. They are fixed monthly payments that can be cancelled at any point. This being said, it is still worth checking the policy exclusion clauses to see if this affects you.
So what does someone need to do if they discover they have been missold PPI? Well, the first thing to check is whether the policy was sold before 14 January 2005 or after January 2005. Anything sold before this date is classed as an unregulated sale and will be subject to different rules. What this means to the consumer is that they need to be aware when making a complaint whether the sale of the policy is classed as an “advised” sale or a “non-advised” sale.
Once this has been established, the consumer will then need to ensure that they have the documentary evidence relating to their claim. The most important details to have are the loan agreement number, the date of sale of the policy, the term of the loan and the total cost of the insurance policy.
A complaint will need to be carefully drafted based on the consumer’s personal circumstances at the time of sale. It can also be helpful to have a basic understanding of the Statute of Limitations Act, the Misrepresentations Act and the ICOBS provisions as they relate to payment protection contracts.
Customers need to understand that a complaint may not go the way they planned it. There are rules governing what constitutes a final decision and there may be options which allow the consumer to appeal against the decision. In some circumstances, complaints can be appealed through the Financial Ombudsman Service, which itself has different levels of appeals.
To simplify the whole process, a consumer can contact a claims company who can handle their mis sold payment protection claim on their behalf. A claims company should have the right skills and knowledge to deal with PPI complaints effectively on behalf of consumers. Some people do not have the time and inclination to manage this process alone, so letting a claims company do it for them could prove to be a good choice.
