Reclaiming payment protection insurance
PPI is an insurance policy which helps borrowers who have taken out loans and credit cards and who are unable to work. Millions of such policies have been sold to UK consumers over the past decade.
PPI is now a big talking point. One of the fundamental reasons for this is that the public realises that this insurance was routinely missold. Endowment policies were widely mis-sold throughout the 1990s and now another type of policy is receiving the same sort of media attention due to the mis-sale of these policies. It seems that many lenders have not learned from past mistakes.
So why is everyone talking about PPI? Well, the main problem with this insurance is the cost and lack of flexibility. Single premium PPI is added on top of the original loan amount. What this means is that the PPI insurance attracts interest as well as the loan.
When selling insurance to consumers, financial institutions should give them the full facts, especially if it influences their decision to buy the policy. The big issue with PPI is that it is so expensive. Instead of a fixed monthly payment, consumers need to increase the size of their loan. Additionally, if the borrower wants to pay off their loan early, they lose a lot of the money that has been paid into the payment protection plan.
Another reason why PPI was mis-sold is that many of these loans last longer than the insurance policy. So anyone taking out a ten year loan, for example, would only be covered by the insurance policy for the first five years 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 not included. 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 such issue is that people were led to believe that they would not get the loan unless they took out the policy. 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 stepped in to intervene regarding the sale of PPI. 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 been fined by the FSA due to the way they have treated their customers. Now other lenders are very much aware that they need to get a firm grip on their own processes if they are to avoid a similar fate.
An alternative to single premium PPI is to purchase one that has a fixed monthly payment. These policies tend to have less stringent conditions for making a claim and also tend to be less expensive. They are not added to the cost of the loan so the customer could easily cancel the policy at any time without losing out financially. Having said that, with all insurance policies, it is worth checking the small print to see whether there are circumstances where you are not covered by the policy.
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 management company should have the relevant knowledge and expertise to push many claims through successfully. Some people don’t have the will to deal with their financial problems themselves, so engaging the services of a claims company could be a good option to take.