Mis-Sold PPI Story

They estimate that as many as 20 million paymentalternativeo Age limitations for making claims were
protection insurance (PPI) policies have been sold bynot explained to borrowerso Borrowers needs were
Banks, Building Societies, Specialist lenders, Financenot properly analysed by sales staffo Self employed
Companies and Mortgage Brokers in the UK and it'sborrowers were sold redundancy packageso
estimated that as many as 90% may have beenUnemployed borrowers were sold policieso Borrowers
mis-sold.on the sick were sold accident and sickness policies
To support this, it has been reported that aroundThe list goes on and on..... In hindsight, it can be seen
90% of all missold PPI claims submitted to thethat the lending industry ran amok over borrowers
Financial Ombudsman are being upheld and massiveand often it was the most desperate borrower that
compensation claims are being awarded against UKended up paying the highest price.
lenders.So, what happened to straighten out the industry
The payment protection insurance industry isand what helped to stop the perennial abuse of the
estimated to be valued in excess of £6 billionUK borrower?
to the UK lending industry and if 90% of these claimsThe insurance industry became regulated in January
have been mis-sold, then the reclaim industry has a2005 and became the responsibility of The Financial
massive task ahead of it.Services Authority (FSA). It became apparent to the
Well what is all this missold PPI about?authority that complaints against these lenders were
The idea of arranging an insurance policy to protecton the increase as borrowers began to realise that
individuals against financial hardship in the event ofthey had been badly treated by lenders and policies
losing their job through redundancy, being off workthat they had been sold were not paying out. As
through sickness and/or accident is a good, as thecomplaints went up, so the fines against lenders
insurance policy would pay out a monthly benefit toincreased.
an individual to help them to meet their loanBy January 2007 stories began to emerge of small
repayments. It all sounds good so far.companies being fined and headlines read as follows:
There are a number of factors and clients...... The FSA has already fined three firms for poor
circumstances that should be taken into considerationpractice in selling PPI - Regency, Loans.co.uk and
by advisers when considering insuring a client for theRedcats. It has imposed a public censure on Eastern
repayment of a loan and I list these for consideration.Western Motor Group and action was taken against
1) Is there a need to protect the individual/s?Capital Mortgage Connections and Home and County
2) Do they already have protection in place?Mortgages.
3) Does the customer qualify for the protection?But the industry ignored these warning signs and
4) What term will the protection last in comparisoncontinued with its tirade of abuse and failed to heed
with the loan term?the warning signs. By September 2008 most of the
5) Is the protection suitable?big boys (lenders) had been taught a lesson by The
6) Are there any pre-existing condition clauses?Financial Services Authority (FSA) for misselling PPI
7) If yes, have these been explained?and fines had been dished out ranging from Egg being
8) Have comparisons of similar products been made?fined £721,000 to Alliance & Leicester
9) Have the terms and conditions of the policy beenbeing fined £7 million in October 2008.
fully explained?Eventually, it became necessary to change legislation
Unfortunately, most of the payment protectionand from May 2009 to totally ban the sale of single
insurance (PPI) policies sold by lenders( to protectpremium PPI. Further to this lender now have to wait
loans and credit card payments) have been sold as aa minimum of fourteen days before they can
single premium policy. This effectively means placing aapproach borrowers about arranging a monthly PPI
lump sum insurance premium on top of a loan andpolicy to protect the loan.
thereby increasing the loan amount substantially. ItMissold PPI Claims
has been reported that this insurance premium canSo how does a borrower go about getting
increase the loan amount by as much as 40% incompensation for being missold a PPI policy now that
some instances.you realise that you may have a claim? There are a
A typical example would be as follows:number of different options available and each one
Loan amount borrowed £ 25,000 over 20has its advantages and disadvantages:
year term @ 9% APRThe DIY Routeo You can write directly to the lender
Single premium Payment Protection Insuranceand negotiate a claim yourself.o You may seek help
premium = £6,975from the Financial Ombudsmano You can contact and
Total borrowed £25,000 + £6,975 =liaise with government bodies e.g. Citizens Advice
£31,975 @ 9% APRBureau.
Payment protection insurance would normally protectInstruct a Solicitoro You may prefer to instruct a
the borrower for the first five years of the loan,solicitor to act on your behalf, to collect the relevant
whilst paying the full 9% APR on the total amountinformation and pursue your claim.o There may be
borrowed for the whole 20 year term.charges attached to this service
Now logic tells us that we do not just suffer theUpfront Charging Claims Companieso There are a
consequences of redundancy, accident and sicknessvariety of specialist claims management companies
over the first five years of taking out a loan andwho offer their services.o Some request an upfront
experience tells us that we tend to suffer fromcharge of up to £500 (and £100 for
illness the older that we get. So, where is the logic ofeach subsequent claim) and may also take a
arranging a short term policy such as this, on a longpercentage of your settlement fee.
term loan?Claims Onlineo You can claim online using the services
The issues regarding the mis-selling of paymentof an internet based claims management company.o
protection insurance are massive and there is a wholeThere may not be an up-front charge for this type
list if things that can be identified to each individual'sof service but the claims management company will
circumstances but surely the product selected shouldtake a percentage of the value of the settlement.o
be suitable and fit for the purpose in the first place.You will be required to provide the full relevant
The ideal situation for this would be a protectioninformation for each application
policy that protects for the term of the loan and oneNo Win No Fee Claims Management Companieso
that is not added to it.Offer a service that may include a face to face
So what are the major areas that people have beenexplanationo FREE claims analysis and ongoing client
mis-sold PPI and how are they currently beingsupporto You pay nothing until your claim is settledo
compensated?On settlement, you pay up to 25% of any sums
Research has identified the following common missoldnegotiated on your behalf
PPI problem areas:o Borrowers are often soldConclusion
completely inappropriate policies that they cannotThe UK payment protection insurance industry is
claim ono Policies will not pay out because ofhuge and billions of pounds have been made by
pre-existing medical condition clauses not identified atlenders by overcharging borrowers by up to 10 and
the application stageo Borrowers are not aware that15 times more for PPI policies than would normally be
a lump sum has been added to their loano Borrowersavailable on a commercial basis.
are not aware that the insurance lasts only for theLucky for the lenders that they had a captive
first five years but the loan may be 10, 15 or evenaudience and found clients that had traded with them
25 year termo Borrowers are told that they had tofor generations, as this made the borrower easy
take out the policy to qualify for the loanomeat and allowed the lenders to missell them and
Borrowers were not advised that a cheaper monthlymake their £ billions profit per year.
payment options was availableo Long term accidentWhat will be the next mis-selling story I wonder?
and sickness policies were not offered as an