The issue with PPI in the UK
Posted by forexauthor - 03/01/10 at 03:01 amPPI 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 everywhere in the media. This is because many people now realise that these 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 institutions have not learned the lesson of past indiscretions.
So why is PPI such a big talking point? Well, the fundamental problem with PPI is that it is an expensive and inflexible insurance policy. Single premium PPI is rolled up into the loan from the beginning. 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. The big issue 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.
Another aspect of misselling is that many of these loans extend beyond the five year period of the insurance policy. This means that anyone taking out a longer loan, say 180 months, would only be covered by the PPI for the first 60 months of the loan. This would leave them without cover for the remainder of the loan.
Another great concern with payment protection insurance is that it only pays out in limited circumstances. Some medical conditions are excluded, especially pre-existing medical conditions known to the customer at the point of sale. What’s more, anyone who was retired, self-employed or a student will probably find it difficult to claim for unemployment.
However, the problem isn’t just with the insurance policy but the way it was sold to people. One such issue is that people were led to believe that they would not get the loan unless they took out the policy. People who take out loans often need the money urgently so they have less time to energy to combat any pressurised sales.
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 increased its role as regulator. 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 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 a consumer need to do if they find that 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.
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 simplify the whole process, a consumer can contact a claims company who can handle 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 people do not have the time and inclination to manage this process alone, so letting a claims company do it for them could prove to be a good choice.
