Payment protection insurance, or PPI, is a type of insurance designed to cover credit and loan payments. It is typically sold by lenders like banks as part of the credit or loan product. PPI usually covers the payment in the event the borrower is unable to make the payment due to unemployment, illness or injury. These lenders often sell PPI to borrowers who are unable to collect payment protection refunds under any circumstances.

The current controversy over PPI is due to the rate of rejection for PPI claims, which is significantly higher than that of other types of insurance. This is primarily because customers often buy PPI without determining if they will be eligible to make a claim. Many of these customers are unaware that they have even purchased insurance for their credit product. Lenders typically sell PPI at the same time they sell the primary product.

More than 20 million PPI policies existed in the United Kingdom as of 2008 and about seven million policies are added each year, according to the Policy Assessment Service. About 40 percent of these policyholders say they are unaware they have a PPI policy. Consumer groups such as Which? claim that PPI has been mis-sold on an industrial scale since 2000.

Lenders are highly motivated to sell PPI to their customers because this insurance has a high profit margin, typically 80 percent. This means that PPI routinely earns more money for the lender than the original loan. Many lenders offer loans at a very low interest rate to attract borrowers, and they frequently provide large commissions to the loan officer who completes these loans. Virtually all of the profit on these sales comes from the PPI.

Some lenders provide their salespeople with scripts that only mention that the loan is protected without informing the borrower of the cost of this protection. The Open University claims that many salespeople also inform borrowers that PPI was mandatory or that it would increase the chances of getting the loan approved. Customers in financial difficulty are unlikely to question these statements.

A customer who unknowingly purchases PPI can file a claim against the lender. The Financial Services Authority has fined several large financial institutions for misrepresenting the sales of PPI. Claims involving PPI comprised 30 percent of the claims made against these institutions for the 2009 to 2010 reporting period, according to the FOS.

The Competition Commission implemented additional rules in October 2011 that are designed to allow consumers to make more informed decisions regarding PPI sales. These rules include a prohibition on selling PPI at the same time as the loan product and a requirement for lenders to conduct an annual review of PPI sales.

Find out here how much your claim is worth!

Payment protection insurance or PPI is a type of insurance cover that is often associated with different types of credit cards and loans. Essentially, the intention of the cover is to provide a means of making minimum payments when the debtor is unable to do so, owing to the occurrence of some sort of covered event. This means that if the debtor is ill for an extended period and cannot earn income to make the payments, the insurance will cover those payments for a period of time. Other examples of covered events would include accidents, job layoffs, and various other circumstances that interrupt the income stream of the debtor.

While the idea of PPI is helpful, the insurance product has been the topic of some controversy. The root cause of that controversy is the failure of lenders and creditors to properly advise debtors of what the insurance does and does not cover. The end result has been mis sold payment protection insurance that did not provide the cover when it was needed the most. Currently, there are ways for disgruntled clients to go through a claims back PPI process and attempt to recoup all or at least some of the money paid for cover that was essentially useless to them.

How the Mis Sold Payment Protection Insurance Controversy Arose

The foundation for the mis sold payment protection insurance controversy has to do with how the PPI was presented to customers by representatives of lenders and creditors. While a broad overview was presented in most cases, there was a failure to get into the specifics of what was and was not covered. For example, the representative may fail to mention that the insurance protection would not apply if the debtor was unemployed at the time the insurance was purchased. Self-employed customers found the cover did not apply to them. In like manner, some retirees found that their coverage was of no value, owing to fine print in the terms and conditions.

Another issue with the mis sold payment protection insurance is that many consumers were unaware they even had the cover. This is because the insurance was often presented as part of the fees and charges associated with obtaining the loan or being approved for the credit card. In some instances, representatives would convey the impression that without agreeing to the cover, the chances for obtaining the loan or being approved for the credit card would be diminished. Given that impression, along with the idea that the mis sold payment protection insurance provided broader coverage than it actually did, many consumers simply went along with what they were told and paid the premiums right along with making monthly payments on the account balance.

The Claim Back PPI process

After a 20 April 2011 ruling by the courts in the United Kingdom, efforts to correct the situation created by the mis sold payment protection insurance began to manifest. A number of firms offering claim back PPI support began to appear. The purpose of those firms is to assist consumers in filing claims with their creditors, and receive a refund of the premiums paid over the life of the credit or loan account. In exchange for the support, these firms typically charge a fee that is based on a percentage of the total amount of the claim back PPI filing.

Some lenders and other creditors have taken a more proactive approach and provided their customers with the forms necessary to submit a claim back PPI. When this is the case, the consumer is responsible for identifying the amount due on the claim and providing certain other information in support of the fact that full disclosure was not made at the time the PPI was accepted. Assuming the figures match with those of the lender or creditor, the amount of the claim back PPI may be tendered in the form of a direct payment to the client, or the amount may be deducted from the current outstanding credit card or loan balance.

Consumers who are not sure they ever were mis sold payment protection insurance should look through the originating documents for the credit card or loan account. Also, take note of any charges applied to the account for the insurance protection. If in doubt, talk with an expert who can consider your circumstances at the time the insurance was initiated and determine if you are eligible for some type of claim PPI reimbursement. Depending on how long the account has been in place, the amount of that reimbursement could be significant.

Find out here how much your claim is worth!

How much are you due?

Payment protection insurance claims are huge financially for the banking and financial system and with the high court hearing of 20 April 2011 rejecting the BBA’s arguments, on the Judicial review sought by the BBA against the recently updated rules of the FSA and FOS , PPI claims are back in the spotlight.

An estimated 3 million people (source BBC news) potentially believe that they have been mis-sold PPI and the compensation claims are expected to run into billions of pounds.

History

There are estimated to be around 20 million policies sold each year in the UK, an economy estimated to be worth 5 BILLION POUNDS for the companies involved.

The whole sorry affair has been building up during the last five years with the FSA clamping down and fining PPI sellers for “not treating customers fairly”.  This was then further “steeled” in  August 2010 with a new set of rules requiring lenders to proactively find and compensate customers.

It was these plans that the BBA decided to take legal action against and certain lenders used this as a basis for suspending any claims processing.

It is also worth noting that The Financial Ombudsman (FOS) has complained to the regulator that it thinks lenders are “deliberately trying to obstruct the Ombudsman process“.  It thinks some lenders reject ALL consumers’ attempts to reclaim.

What happens next?

Predictably the banks have requested and have been granted leave to appeal and have until 10 May 2011.  Individual banks are expected to hold processing any claims until this date.

The good news

Should the banks either:

• Cave in;
• Lose the appeal;

then they will start to pay compensation and, crucially, re-examine complaints that have already been rejected.  The new rules also suggest that lenders will need to contact all past PPI customers including those who have never complained, opening up a whole new stream of people with genuine payment protection insurance claims.

This is fantastic news when compared with the FOS’s percentages of complaints upheld in favour of the customers last year – 100,000 claims, 75% upheld!!

Enough already, show me the money

How much will I get?

It depends, however having said that the FSA estimates that claims for PPI refunds for a mis-sold single premium policy where all of the cost was paid upfront might be around £1,800 whereas if you paid by instalments it may be around £900.

The chances of having multiple policies and hence multiple claims are also very high considering that PPI insurance is/was a common add-on to any type of loan, hire purchase agreement, credit card agreement etc….

Anything else

Happily, under the new FSA rules banks and other lenders will have to be much more careful about how they sell PPI to future borrowers and separately the Competition Commission is set to bring in new rules preventing lenders from selling PPI at the point that they sell the loan.

What should I do next?

Check out our post on how to claim back PPI to see what you should do next to get started with your payment protection insurance claims.

Related posts

Payment Protection Insurance Claims

Mis Sold Payment Protection

PPI Calculator

Determining how far back a claim for mis-sold payment protection insurance can still be made will depend upon a number of factors. First of all it’s important to establish the facts. Find the loan paperwork and make a note of when the insurance commenced and if it has ended, when it did so. Next locate the date of the first payment and preferably confirm this upon a bank statement.

Financial Ombudsman Service

The Financial Ombudsman Service is the independent service created for settling complaints between consumers and businesses selling financial services and was established in 2001. It is still worth contacting for help with recovering premiums paid on loans that ceased prior to 2001. They can be found here: http://www.financial-ombudsman.org.uk/. The FOS have however a separate time limit in that they require you to contact them within six months of first making the complaint to the financial company.

Limitation act 1980                                                                                                                       

The Limitation Act 1980 is a British Act of Parliament, it is statute of limitation. The general limitation on simple contracts is six years. The time limit runs from after the accrual of action, which is “the earliest time at which an action could be brought”. This is particularly important with regard to claiming back PPI premiums because the point at which the earliest action could be brought will depend upon the realisation that payment protection insurance was mis sold. In practice this could mean that the six time limit doesn’t start ticking until the day that you realise that payment protection insurance has been mis sold.

Professional advice

The information provided here is a guide and is not intended to be a substitute for professional advice.

Calculating and making a rough estimate of how much PPI compensation you may be due without the paperwork and without a PPI Calculator is straight forward enough although as with any manual method checking and rechecking the numbers is essential to avoid any simple computational errors.

In the example here we focus on a loan agreement over 5 years where the total amount of the monthly repayments are known:

Monthly repayment: £100
Total number of month: 60 months
Hence total amount repaid = 100 x 60 = £6,000.
This total consists of – Loan principal (amount borrowed) + interest + PPI premiums
Next we just need to apply a percentage to how much of the total amount repaid is payment protection insurance.
Common percentages – 10%, 15%, 20%
Using these common percentages we come up with three different possible premium amounts:
10% = 6,000 x 10% = £600
15% = 6,000 x 15% = £900
20% = 6,000 x 20% = £1,200

You can easily adapt the logic and calculation above for varying loan lengths and amounts. Please however remember that the above information is only intended to be a guide.

The British Bankers Association (BBA) has today given up its legal challenge against mis sold payment protection insurance by announcing that it will not appeal against the High Court ruling of 20 April 2011.

In a statement the BBA said: “In the interest of providing certainty for their customers, the banks and the British Bankers’ Association have decided that they do not intend to appeal.”

This follows on from LloydsTSB’s decision on 5 May 2011 to withdraw its support for the legal challenge.

In response to LloydsTSB’s announcement last week that the bank has set aside £3.2 billion pounds against potential claims other UK banks have now announced that they are following suit with their own provisions.

Barclays are now providing £1 billion pounds to meet the compensation, HSBC £269 million pounds and RBS have also confirmed that it will not contest the ruling.

PPI (Payment Protection Insurance) has been in the news on and off recently as UK banks fought to challenger ule changes implemented by FSA (Financial Services Authority) and FOS (Financial Ombudsman Service).

This challenge culminated in a High Court hearing on 20 April 2011 where the High Court rejected the BBA’s arguments.

The BBA were given until 10 May 2011 to make an appeal.

Payment Protection Insurance is a product designed to cover loan and other credit payments if someone loses their job, falls ill or has an accident.

An estimated 16 million policies have been sold during the last 6 years in the UK and a large proportion of these are now thought to have been mis sold.

The policies were sometimes sold to self-employed persons who would be ineligible to make a claim, often misrepresented as being necessary for the issue of a loan and also to customers who did not know that they were taking the policy out.

The mis sold payment protection insurance scandal has led to numerous complaints being made to and upheld by the Ombudsman and this led to The Financial Ombudsman  complaining  to the regulator that it thinks lenders are “deliberately trying to obstruct the Ombudsman process“.

There has also been an increase in the number of claims handling firms who attempt to reclaim PPI back on behalf of consumers.  Should you be considering using a claims handling firm it is important that you ensure that they are regulated correctly.  A firm of Solicitors will be regulated by the Law Society through the Solicitors Regulatory Authority and a claims firm will be regulated by the Ministry of Justice.

The latest mis sold payment protection insurance news comes as another blow to the banking sector which is still trying to trade its way out of the recession.

Lloyds TSB, 43% of which is owned by UK taxpayers, has made a provision of £3.2 billion in its latest accounts to make compensation payments to customers who were mis sold payment protection insurance.

The provision has pushed the bank’s results into the red as it continues to attempt to climb out of the financial mess it fell into after taking over HBOS.

What is a provision?

A provision is made to recognise a potential liability within a set of accounts before the actual payment of that liability.  In the UK accounts are based upon the concept of being “true and fair” accounts.  To be considered true and fair a set of accounts must follow certain fundamental accounting concepts as well as UK GAAP.

Here the fundamental accounting concept is prudence which states that expenses and liabilities are recognised and recorded as soon as possible.

Does this mean payouts are more likely?

Yes, although by no means certain.  Lloyds TSB is the first bank to recognise the cost of mis sold payment protection insurance claims and it is now more likely that other banks and lenders will follow suit.

Lloyds TSB’s new chairman Antonio Horta-Osorio has announced that the bank will no longer be pursuing the BBA’s legal challenge against mis sold payment protection insurance policies which is great news for consumers.

Lloyds TSB have also announced that they will not use the pending BBA legal action as a reason to withhold claims processing and payments.

What should I do next?

Begin your claim is probably the best advice now.  With Lloyds TEB being the first bank to cave in then the other will probably follow suit.

The initial estimate made by the FSA of an industry-wide bill for mis sold payment protection insurance of a bit over £3bn is now looking like a wildly understated estimate.

Below are some suggested questions to ask of a company that you plan to use to help you claim back PPI.

Is the company regulated by the appropriate authority?

If you are using a firm of solicitors then they will be regulated by The Law Society and more specifically by the SRA (Solicitors Regulation Authority).

If you use a claim handling firm then they will be regulated by the MOJ (Ministry of Justice) and will have a reference that you can check in the MOJ’s database.

Avoid any firm that is not regulated.

Reputation of the company involved

It’s important that you pick the right business to help you.  Things you should be asking are:

• What is your average settlement time?
• What is the average amount of compensation that you recover?
• How much do you charge?
• In what percentage of cases that you agree to take on do you help people to successfully claim back PPI?

It is worth searching the internet and discussion forums for anything related to the firm.  You are more likely to find discussions on service dissatisfaction just because people are more motivated to make these posts than the opposite.  Keep a note of the volume and nature of the complaints.

How long have has the business been established?

Because of the volumes involved both in terms of potential complainants and settlement figures and also due to the relative ease of setting up a claims firm there have been many new few established.  You ideally want a reliable, long established firm with competent staff and adequate systems in place to deal with your claim.

How many people have you helped successfully claim back PPI?

Here you are looking to engage a capable firm that has not fallen afoul of any of the lenders and one that has a proven track record of successful claims recoveries.  The last thing that you want is a firm that has yet to cut their teeth or refine their systems.

These questions will help you to get started in your quest to claim back PPI.

Mis sold payment protection insurance – 5 areas to look at:

1. Were you told that the cover was compulsory?

Many people were or were at least led to believe that this was the case.  The truth is that the granting of a loan or other credit was never conditional on payment protection insurance being in place.  Being told that cover is compulsory is being mis sold payment protection insurance.

2. Were you self-employed or on a fixed term contract?

If this was the case then the cover should never have been sold to you as you would never have been eligible to claim under the policy.  This should have been explained to you BEFORE you agreed to take the policy and an alternative form of insurance could have been offered.

3. Were you given the option to shop around for alternative cover?

Again, with the product not being compulsory it may well have been that you were not getting the best deal around on the market or even one of the better deals on the market.  Were you made aware that you could shop around and use another provider?

4. Did you have a pre-existing medical condition?

If you had a pre-existing medical condition this may have voided the insurance and in which case not only was it not suitable for you it would never have paid out.  Again, a classic example of being mis sold payment protection insurance.

5. Has your insurer already suffered fines for misselling?

A sure fire way to identify if you can make a claim.  A lot of big name banks and lenders have already been fined for the manner in which they sold PPI policies. Investigate the reasons why your lender has been fined to give you clues to help with your own claim.

Conclusion

There are many ways that you can identify if you were mis sold payment protection insurance and these five are good starting points.

Lenders are said to be making as much as £1.5bn per annum from the sale of PPI, an impossible figure which should help to eliminate any potential guilt when considering payment protection insurance claims, which cover financial obligations for ongoing expenses during unforeseen and unpreventable absences from work.

Consumer campaigners say as many as a third of policyholders might not be eligible to claim under the provisions of the policies. An estimated six million have signed up for the insurance over the past half a decade. The Competition Commission, Which? and The Office of Fair Trading all say they have found confirmation of huge mis-selling all of which is fuelling the number of payment protection insurance claims.

Pensioners were sold policies yet they would be unable to claim as they have no earnings to cover.

A number of policies also carry get outs which apply to certain common types of cancer.

The arrangements are said to be swamped in small print that makes it very difficult for consumers to make a claim. Banks and retailers, including those selling finance on cars, store cards and furniture, make £5.5bn in income a year from the sales of the insurance.

All of the above mean that the number of payment protection insurance claims is on the rise.

Doug Taylor, a personal finance campaigner at Which? said: ‘We’ve always known that people were being mis-sold payment protection, but we were still amazed to discover the scale of it.

‘It appears that salespeople are chasing their commissions, their bosses are chasing profits – where’s the sense of responsibility to the customer?’ Which? investigations show that 1/3 of policy-holders might fall foul of small print that would prevent them from making a claim.

Those affected include the self-employed, those on fixed-term job contracts and anyone with a medical condition.

The Financial Services Authority has imposed a number of huge fines on companies found guilty of mis-selling payment protection leading to a huge number of consumers making payment protection insurance claims.