The issue with PPI in the UK
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.
Everyone is talking about PPI. One of the main reasons for this is that it has come to the public’s attention that such policies were widely mis-sold. Endowment policies were widely mis-sold throughout the 1990s and now another type of policy is receiving the same sort of media attention due to the mis-sale of these policies. It appears 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 main problem with this insurance is the cost and lack of flexibility. 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. 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. Furthermore, if the customer wants to cancel the policy they stand to lose out financially.
Another reason why PPI was mis-sold is that many of these loans last longer than 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 fundamental problem with PPI is that it only pays out in specific 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.
However, the problem isn’t just with the insurance policy but the way it was 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 stepped in to intervene regarding 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 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 added to the cost of the loan so the customer could easily cancel the policy at any time without losing out financially. Having said that, with all insurance policies, it is worth checking the small print to see whether there are circumstances where you are not covered by the policy.
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 simplify issues, anyone can contact a claims management company who will 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.
