It has been recently report that the Lloyds Banking Group is fighting the ban on sales of payment protection insurance, which was brought in to protect millions of borrowers. The subsequent appeal could potentially delay a ban on sale of PPI at the same time as credit agreements.
In addition the competition watchdog has said that lenders should wait at least two weeks before selling PPI, this can be considered to be further ammunition for the growing numbers of consumers who potentially believe that they were miss-sold PPI policies.
What is PPI or Payment Protection Insurance?
It is very likely that you may not be aware of what PPI is – However, given the estimated 20 million policies that exist in the United Kingdom, it’s likely that you may have a policy without realising it. According to the latest statistics as many as 2 million of the policies may have been miss-sold their policies, and this is reflected in the proposed changes to the sales processes which in some instances are perceived to be not conducive to a “fair” sale.
PPI or Payment protection insurance, is a general insurance product which was previously often sold at the same time as mortgages, loans, store cards, credit cars and Hire Purchase agreements like car finance agreements, the purpose of the policy is to meet repayments if you can’t make them due to specified circumstances. If you are unable to meet the required repayments due to an accident or illness that potentially means you cannot work for a given period of time, or alternatively if you are made redundant, a PPI policy is supposed to kick in and meet the payments for a given period.
This sounds fantastic I hear you say! What’s the catch?
Whilst in principal the policies can be extremely useful, it has been identified that PPI policies bought directly from a lender is often extremely poor value for money. In addition, PPI policies are often sold to people who will not be able to raise a valid claim. The terms and conditions of such policies are extremely stringent, and according to recent research only one in five claims has been successful. Each policy will have specific terms and conditions, but in recent example policies have not paid if consumers are self-employed, retired, or alternatively if you stop work due to what’s known as a pre-existing medical condition, i..e. one that existed prior to the inception of the insurance policy, even if you weren’t specifically asked about it. A common further exclusion is claims down to stress or back problems
There has also been recent significant evidence of lenders pushing consumers into policies, with examples uncovered where lenders have wrongly claimed it’s compulsory to secure the credit or in some instances refusing to give a quote without PPI. There have been many further cases where the PPI has been added without the permission of the customer.
In some examples, PPI is paid for up front, and the cost of the policy is added to the finance which you are taking out. This is commonly known as ‘single premium’, which means that you attract interest on the cost of insurance. When the customer attempts to cancel the insurance policy they are often advised that this cannot be achieved without recalculating the entire loan.
Now that’s not so good, so what is being done?
The Financial Services Authority (FSA) which is the regulator of the Financial Services marketplace has been increasing its action against firms found to have mis-sold PPI, furthermore the Competition Commission has recommended that PPI should not in any circumstances be sold at the same time as the credit product. The financial institutions are in the process of appealing the decision but it looks likely that they will fail. This in turn could be a major step in changing the way in which these policies are sold, and reducing some of the more unethical practices of the PPI market.
Is it possible to reclaim on any PPI policy?
Any claim for compensation is primarily dependent on when you took the insurance. The FSA only took over the jurisdiction for the sale of General Insurance products of which PPI is one, in January 2005. Sales prior to this date would not covered by the latest rules. There is a school of thought however that it would still be worth complaining to your lender if you feel you have been miss-sold. Even if your policy was purchased prior to Jan 2005 there were some regulations in place around the sale of PPI, although it is probably fair to say that these were less observed and stringent. This in turn could mean that the Financial Ombudsman Service will be able to consider these complaints. If the date of inception of your policy was after January 2005, your claim should be subject to the latest rules.