Reclaiming payment protection insurance
PPI is a form of insurance designed to protect the borrower should they be unable to work due to accident, sickness or unemployment. Millions of PPI insurance policies have been taken out over the last several years.
PPI is now big news. 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 seems that many lenders have not learned the lesson of past indiscretions.
So why is PPI such a big talking point? Well, the main problem with this insurance is the cost and lack of flexibility. Single premium PPI is rolled up into the loan from the beginning. This means that consumers not only pay interest on top of the loan, they also pay interest on top of the insurance premium.
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 problem with single premium PPI is the expensive nature of it. Instead of a fixed monthly payment, consumers need to increase the size of their loan. Furthermore, if the customer’s financial circumstances change and they pay off the loan, they may find themselves ouf of pocket when it comes to refunding the insurance premiums.
Some loans are longer than five years, which is normally the length of the PPI plan. 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 customer would then have no insurance cover for the rest of the loan.
Another major concern with PPI is that it only pays out in certain circumstances. Certain medical problems are excluded, especially if they were known at the time the customer took out the policy. In addition to all this, if you weren’t on a full time permanent contract, it could be difficult to claim for unemployment.
However, the issue isn’t simply with the product but the way it was incorrectly sold to people. 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 quickly so they are often at the mercy of pusy salespeople and are pressured into accepting whatever recommendation is put to them.
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 received fines from the FSA due to the poor sales practices. Now other financial institutions are acutely aware of the need to monitor their sales process.
An alternative to single premium PPI is to purchase one that has a fixed monthly payment. These policies tend to have less onerous conditions for making a claim and also tend to be a lot cheaper. 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 a consumer need to do if they find that they have been missold PPI? To start with it’s worth seeing whether your policy was sold before 14 January 2005 or after this date. 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.
