The lowdown on PPI
October 23, 2009BestChatterer No Comments »PPI is a type of insurance policy which assists the borrower with repaying their loan if they are unable to work. 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. We all know about the endowment mis-selling scandal of the 90s and now we have yet another scandal that is more widespread. It appears that many financial organisations have not learned the lesson of past misdemeanours.
So why is payment protection insurance such a big talking point? Well, the biggest issue with this policy is the expense and rigidity of the product. Single premium PPI is added on top of the original loan amount. 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. One of the fundamental disadvantages of single premium PPI is the cost of the product. 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.
Another aspect of misselling is that many of these loans extend beyond the five year period of the insurance policy. So if someone takes out a loan over a 120 month period, they will only be covered for half the duration of the loan. The consumer would then be left without cover for the rest of the loan period.
Another great concern with payment protection insurance is that it only pays out in limited circumstances. Certain medical problems are excluded, especially if they were known at the time the customer took out the policy. Further, any customer who was not in full time employment will certainly find it difficult to claim for unemployment.
However, the issue isn’t simply with the product but the way it was incorrectly sold to people. One major issue is that many consumers thought they had to take out PPI in order to get the loan. 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 payment protection insurance. 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 major lenders are taking steps to improve their processes to avoid the wrath of the FSA.
Instead of buying a single premium policy it is possible to buy a standalone policy. These policies tend to have less rigid conditions for making a claim and are also not as dear. They are not rolled up into the cost of the loan so the customer could easily cancel the policy at any time without losing out financially. 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? 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.
Consumers may also need to consider that their complaint may be rejected in the first instance. 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 will usually know the ins and outs of making a complaint and should have the necessary experience and expertise to make a large number of successful claims. 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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