You have suffered the annoying automatic phone calls. You have finally worked out what PPI stands for, and you have a vague idea you might be missing out on a windfall. So is it time to stake your claim?
The Protection Insurance issue is expected to end up being the biggest mis-selling scandal to date, affecting over three million people and costing financial firms up to £9 billion. This dwarves the £2.7 billion paid out over wrongly sold endowments and could be double the £4.5 billion shelled out over personal pensions.
The issue hit the headlines last spring, when the banking industry dropped a legal challenge against the rules on PPI mis-selling being applied retrospectively. This opened the way for millions of customers to claim compensation, with banks admitting they were expecting to pay out vast sums. Lloyds Banking Group alone set aside over £3 billion.
By February this year, the Financial Services Authority confirmed that around £1.9 billion had been paid out. However, this means that many billions more are still waiting to be claimed.
Under FSA guidelines, banks had to go through their records to check for evidence of ‘systemic’ mis-selling, and then write to these customers and invite them to make a claim. If you have not been contacted, however, this doesn’t mean you have not been mis-sold a policy. There is nothing to stop you making a claim.
What is PPI?
Payment Protection Insurance, as the name suggests, is a policy intended to cover the payments on a debt – such as a mortgage, personal loan, credit or store card – should you become unable to pay through illness, injury or redundancy.
It is estimated that, since 2005, 16 million PPI polices have been taken out. Millions were wrongly sold or simply useless. The ever reliable Which?, one of the organisations campaigning on this issue, has produced this handy checklist for people who think they may have been mis-selling victims.
- If the insurance was optional, was this made clear to you?
- Did the adviser tell you about any significant exclusions under the policy? For example, that you wouldn’t be covered under any pre-existing medical condition.
- If you took out a loan or finance agreement, did the advisor make it clear you would have to pay upfront in one single payment?
- If you had to pay a single payment upfront, did the advisor make it clear this would be added to the loan and you would be paying interest on it?
- Single premium PPI normally only lasts five years. If your loan or finance agreement was for longer than this, did the advisor make it clear that the insurance would run out?
Should you answer ‘no’ to any of the above questions, you could well be entitled to compensation, no matter how long ago you took out the loan.
Similarly, if you bought PPI after 2005, did the advisor try to persuade you to take it out by saying something like “We strongly recommend you consider taking out PPI”?
If so, this means it is an ‘advised sale’ and the advisor should have issued a ‘demand and needs statement’, showing why the policy was recommended and why it was suitable for you. If they didn’t, this is a ground for complaint.
And why shouldn’t you? PPI does not come cheap, as the Citizens Advice Bureau – which is also campaigning on this issue – points out. The CAB has calculated that the premiums can cost between a quarter and a half of the total cost of a personal loan. However, the average sum paid out is only between about £1,000 and £2,000, depending on the size and term of the loan, and whether the payments were made regularly or as an upfront lump sum.
Premiums and payouts
Making a claim is relatively simple. There is no need to turn to any of the many claims companies looking for a share of this particularly juicy pie. A number of organisations, including Which?, have provided straightforward templates and tools, such as the Financial Ombudsman’s online PPI resource.
Suffice to say here that your first port of call should be the bank or other financial organisation that provided the loan. Success rates for PPI claims are high, with the big four banks – LloydsTSB, NatWest, Barclays and HSBC – recording that more than 80 per cent of claims are resolved in the customer’s favour.
Even if your first attempt is turned down, it is worth pursuing your claim. The Financial Ombudsman is expecting to receive 165,000 customer complaints during the next financial year, and to uphold the majority.
Further reading on Ombudsmen: Customer service: watchdog websites