Mis-sold 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 payment protection plans have been sold in the UK over the last few years.
Everyone is talking about PPI. This is because many people now realise that these 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 the media making a big thing out of PPI? Well, the biggest issue with this policy is the expense and rigidity of the product. Single premium PPI is added to loans at the outset. What this means is that consumers are having to pay interest on top of the loan and the insurance policy.
Lenders need to make customers aware of the main features of their products. One huge disadvantage with PPI is that it is so expensive. Instead of paying a regular monthly premium, customers are having to borrow additional money to take out this insurance. What’s more, if the customer wants to terminate the loan early, they lose a lot of the money that has been paid into the insurance policy.
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. Some medical conditions are excluded, especially pre-existing medical conditions known to the customer at the point of sale. Further, any customer who was not in full time employment will certainly find it difficult to claim for unemployment.
Having said all this, the problem doesn’t simply lie with the nature of the policy itself, but the way it was sold to customers. One issue that has cropped up time and time again is that customers were under the impression that unless their took the insurance policy out their loan application would be unsuccessful. 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 cracked down on 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 stepped up its intervention into the sale of PPI. 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 been fined by the FSA due to the way they have treated their customers. Now other lenders are very much aware that they need to get a firm grip on their own processes if they are to avoid a similar fate.
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 fixed monthly payments that can be cancelled at any point. This beng said, it is worth checking the policy documents to see what is and what isn’t covered.
So what does someone need to do if they discover they have been missold PPI? Well, the first thing to check is whether the policy was sold before 14 January 2005 or after January 2005. 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 make the whole issue easier, anyone can engage the services of a claims management company who can deal with their mis sold payment protection claim on their behalf. A claims company should have the right skills and knowledge to deal with PPI complaints effectively on behalf of consumers. Some consumers may not have the time and energy for a protracted battle with their lender, so leaving it in the hands of a specialist company may be a good option to take.
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