Payment Protection Insurance

The £18 billion PPI Claims Provision

Following the debacle of the BBA’s Judicial Review into the handling of mis sold PPI claims, the banks have now buckled under the pressure and finally agreed to repay the customers to whom they had previously mis sold payment protection insurance.  To date the following ppi compensation provisions have been agreed with the FSA:

  • Lloyds Banking Group – £9.8 billion
  • Barclays Plc – £4.1 billion
  • Royal Bank of Scotland – £3.1 billion
  • HSBC – £1.7 billion
  • Santander – £500 million
  • Co-operative Bank – £100 million
  • Clydesdale Bank – £100 million

Many analysts though, believe that the actual cost could be a lot higher – possibly greater than £25 billion making this the largest compensation scheme ever in the UK.

PPI Claims Handling Time Scales

The banks are now struggling to cope with the sheer volume of ppi complaints they are receiving on a daily basis, and if we add to that the backlog of ppi claims that were placed on hold before and during the Judicial Review, it’s safe to say that this could well turn into a logistical nightmare.

In order to avoid this, Barclays Plc agreed to settle older complaints on a ‘no quibble basis’ and the Financial Services Authority (FSA), now the Financial Conduct Authority (FCA), agreed to extend the timescales for settling PPI compensation complaints to 16 weeks:

  • Complaints received earlier than 9th May 2011 should have been settled by 31st August 2011.
  • Complaints received between 10th May 2011 and 31st August should have been settled within 16 weeks
  • Complaints received between 1st September 2011 and 31st December 2011 should have been settled within 12 weeks
  • Complaints received after 31st December 2011 must be settled within 8 weeks as per the FCA guidelines

Unfortunately as it stands today, Sep 2013, the number of valid complaints being rejected by the banks it at an all time high with the Financial Ombudsman Services (FOS) receiving over 2,000 new complaints on a daily basis. What this means for borrowers is that they can expect a wait of 18-24 for the complaint to be resolved.

 

So How Did It All Begin?

Essentially, the banks make money by lending money to their customer at a higher rate of interest than what they borrow it for…. but they got greedy, this wasn’t enough for them.  So they devised a cleverly constructed insurance product, that was designed not to pay out, due to strict terms and conditions and exclusions, and began to sell it along side loans, mortgages, credit cards and other borrowings. This product was Payment Protection Insurance or PPI, also known as:

  • Loan Repayment Cover
  • Accident and Sickness Insurance
  • Card Protection Insurance
  • Mortgage Repayment Protection
  • and many other guises

PPI presented the greedy bankers with the opportunity to boost their profits when customers asked to borrow money.  By adding an insurance premium onto the loan they could more than double their profits!!  How is that I here you ask? Well, let me explain…

If you borrowed £10,000 from your bank and re-payed it over 3 years at a flat rate of 7%, you will be paying £2,100 in interest for the privilege and will have to repay a total of £12,100 at £336.11 per calender month.  However, the average cost of the PPI policy was 25% of the loan amount… so £2,500 plus interest, giving the bank a total of £3,025 for the policy that has not cost them a thing and will not pay out…. KER-CHING!!

What is Payment Protection Insurance?

Payment Protection Insurance or PPI, is a type of insurance that was ordinarily attached to a loan, mortgage, credit card or any other borrowing and was designed to cover the insured if he/she is unable to make the minimum contractual repayments due to loss of income following an accident, illness, unemployment or redundancy.  It would only cover the borrowings that it was associated with and not the policy holders other debts.

In theory, it wasn’t a bad product… but there were, and still are, better much cheaper alternatives such as stand alone Critical Illness Cover which will insure all of the policy holders debts and are more likely to pay out when the need arises.

How Was PPI Mis Sold?

PPI was widely mis-sold to customers either at the point of sale or at some point thereafter.  All the benefits would have been explained but eligibility or appropriateness would not have been determined.  Here is a list of the most common was in which PPI was mis sold:

  • The borrower would have bee told that the loan would only be approved is he/she took out PPI alongside the loan
  • The borrower refused to take out PPI but it was added to the loan anyway
  • The borrower was not even informed that PPI had been added to the loan
  • The borrower was not informed that the salesperson would receive commission for selling the product
  • The terms and conditions, particularly exclusions were not explained to the borrower
  • The borrower was ineligible for the cover because he/she was:
    • unemployed
    • in part-time employment
    • a full time student
    • suffering from a pre-existing medical condition
    • was of retirement age
  • The borrower was not offered the option of a monthly premium policy
  • The borrower was told that PPI is compulsory
  • The borrower was not asked about his/her medical history
  • The borrower was not asked about any existing cover that he/she may have had in place
  • The borrower was a public sector worker who was entitled to full sick pay from his/her employer e.g a police officer or nurse

How do PPI policies work?

As previously stated, Payment Protection Insurance policies are designed to cover your contractual payments should you be unable to pay due to accident, unemployment or sickness. The policy will only cover the payments on the debt that it is attached to, not any other debts that the customer may have.

Typically, the customer will have to notify the lender within a specific time period, after the event (accident, unemployment etc), in order to make a valid claim. He will then be expected to maintain his repayments for a further 3-6months until the policy becomes ‘active’. This means that he will not receive a penny until after 3-6months, at which time he will most likely have:

  • recovered from his accident or illness
  • found another job and become able to maintain his payments

In the meantime though, he will either:

  • continue to make his payments as per normal
  • continue to make reduced payments and incur late payment fees
  • stop making his contractual payments and incur late payment fees and defaulting on his account on month 3, at which point he’d be expected to repay his debt in full plus charges

When his policy becomes active, most lenders will begin to cover the contractual payments for 12-36 months meaning that the policy may not be valid for the complete term of the loan, and the borrower may continue to incur late payment fees if his account remains in arrears.

There are many different types of PPI policy and each will have its own specific terms and conditions… but 85% of policies never payout!

How the PPI Mis Selling Scandal Came to Light

1998: The Issue of Payment Protection Insurance being a poor-value product, due to the expense and exclusions, was first raised in Which? magazine.

January 2005: The Financial Services Authority (FSA) took on the regulation and sale of general insurance products and stated that a PPI review would be one of its priorities for that year.

September 2005: The Citizens Advice Bureau (CAB) published “Protection Racket” – a report identifying the problems in the PPI market and issued a Super Complaint to the Office of Fair Trading over PPI sales.

November 2005: The FSA issued its first report on PPI and identified improper sales practices and lack of compliance controls in the PPI market.  Following mystery shopping exercises it wrote to all chief executives of the big banks and highlighted its key findings.

October 2006: The FSA issued a report with more evidence of poor compliance and continued PPI mis selling. 24 companies were entered into “enforcement procedures” for mis selling PPI.

October 2006: The Office of Fair Trading (OFT) issued a report on PPI mis selling, stating that it intends to refer the issue to the Competition Commission.

January/February 2007: The FSA imposed fines on the major PPI providers for treating customers unfairly.

February 2007: The OFT made a  formal referral regarding the mis selling of PPI to the Competition Commission.

January 2008: The Competition Commission published its paper on profitability of Payment Protection Insurance.

April 2008:The Competition Commission then published two further papers highlighting more problems in the PPI market.

May 2008: Which? magazine published research into how PPI was being sold alongside loans. It discovered that up to 2m people may have been sold a PPI policy that they may never be able to claim on.

July 2008: The FSA began to investigate how firms are were handling PPI complaints.

September 2008: Which? published research into PPI sold alongside credit card.  It discovered that 1.3m people may have been duped into thinking that they would be approved for credit if they took out PPI.

January 2009: The Competition Commission recommended that banks selling loans should not sell PPI at same time.

February 2009: The FSA wrote second letter to the banks’ chief executives asking them to stop selling single-premium PPI policies with loans.

May 2009: The FSA banned the sale of single-premium PPI policies.

September 2009: The FSA launched a consultation paper outlining how the handling of PPI complaints could be improved.

October 2010: The Banks, led by the British Bakers Association (BBA) requested a Judicial Review of the new guidelines, arguing that they imposed rules retrospectively.

October 2010: The Competition Commission confirmed that PPI could not be sold at point of sale.

January 2011: The PPI Judicial Review began in the British High Court.

April 2011: The High Court Judge, Justice Ouseley, ruled in favour of the FSA and FOS with the banks given 21 days to appeal the ruling.

May 5 2011: The Lloyds Banking Group became the first to withdraw from legal challenge, saying it wanted to “draw a line” under the unsavoury affair.

May 9 2011: The other member banks of the BBA (Barclays, HSBC, RBS) also decided not to appeal against High Court ruling.

May 11 2011: The news of the PPI Compensation provisions that the banks had agreed with the FSA began to filter out.

Feb 2013: Lloyds fined £4.3 million for delaying PPI payouts.

Jun 2013: Lloyds found to be rejecting valid PPI claims because 90% will give up after initial rejection and not take the case any further.

Sep 2013: Newly formed regulator, the FCA launches investigation into the large number of claims being rejected by the banks based on the 84% uphold rate at the FOS

 

PPI Mis Selling Fines Imposed by the FSA

The Financial Services Authority (FSA) has taken fined over 20 firms for poor PPI sales practices.  Listed below are some of the lenders fined for mis-selling PPI:

  • Alliance & Leicester £7,100,000
  • HFC £1,085,000
  • Liverpool Victoria £850,000
  • Swinton Group £770,000
  • Egg £721,000
  • GE Capital £610,000
  • Loans.co.uk £455,000
  • Redcats Ltd £270,000
  • Land of Leather £210,000
  • Hadenglan Home Finance £182,000
  • Capital One £175,000

How to Reclaim PPI if You Were Mis Sold

If you have been a victim of mis sold ppi, then you should follow the steps listed below to recover your money asap.

  • Write a letter to your lender stating that you were mis sold ppi and ask for a full refund.
  • Be sure to include:
    • your full name (maiden name also if you have married since taking out the loan)
    • your current and previous address (if it was different when you took out the loan)
    • your loan agreement/account number
    • a signed copy of your loan agreement (if possible)
    • the reasons why you feel you have been mis sold
  • Be sure to send the package via recorded delivery so that you have proof of delivery
  • The banks must respond within 8 weeks
  • If your complaint is not resolved within that period then contact the Financial Ombudsman Services and process your claim through them.  To date the FOS has upheld approx 75% of the cases rejected by the banks.

If you do not have a copy of the original signed loan agreement or are unsure as to whether you have paid PPI on your borrowings, then you should write to them and submit Subject Access Request (templates are readily available online) under Section 7 of the Data Protection Act 1998.  Again, your lender must action your request within 8 weeks.  Once you have received the documents requested from your lender, follow the steps above to reclaim your PPI premium.

You must remain resolute as the bank will give you the proverbial ‘Royal Runaround’ to delay repaying PPI in the hope that you eventually give up your PPI reclaim.

The recent scandal involving Lloyds Banking Group, is further proof that the banks have not learned their lesson and cannot be trusted to treat their customers fairly… even after all this!!

If you do not feel that you have the patience to deal with the banks yourself then you should consider using a professional PPI Claims Company who will do all the legwork for you for on a No Win No Fee basis.

Do not rush into making a decision on how you wish to proceed as it could end up costing you a lot of money.  Our advice is to go with an established, reputable firm that does not charge any fees upfront and will process your claim on a no win no fee basis.


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