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By Rachel Jones
Know Your Money Editor

The Financial Ombudsman Service (FOS) has warned customers who are looking to reclaim mis-sold payment protection insurance (PPI) from lenders - including high street banks - to not accept so-called gesture payments which total an amount much lower than what a potential payout would stand at, a report says. Speaking to the Observer, a spokesperson for the FOS says many individuals do not realise they can use the organisation to bag themselves a much larger sum that they are entitled to. If customers do not take such steps to protect themselves, lenders may never learn from their previous mistakes, he claims. And the partly state-owned Royal Bank of Scotland (RBS) is guilty of offering goodwill payments of £750, Sally Bowyer, managing director of claims company BrunelFranklin.com, tells the newspaper.

"The customer often seems to be fobbed off with around £750 as a gesture of goodwill, when the average PPI claim we handle is around £2,200. If RBS is trying to minimise claims to around £750, it may be in a planned effort to reduce its projected compensation payouts by up to two-thirds," she asserts.

But with a Natwest/RBS spokesperson claiming to the Observer that its complaints procedure is fair, what does this mean for cash-concerned customers looking to claw back compensation?

What is PPI?

PPI is a type of insurance that covers a borrower - who has taken out a loan - in the event that they cannot meet their interest repayments, through illness or redundancy, for example. The insurer will make payments towards the loan while an individual recovers or until their financial fortunes take a turn for the better. PPI is often advised to a person when they are taking up a loan from a provider, but this may not always be the best deal on the market. With the current recession clamping down on the finances of Britons and raising the possibility of a household's income being reduced because of redundancies, having PPI in place could take some of the monetary pressure off individuals. Indeed, many parents are forking out to help support their loved ones during these difficult times.

New research from Scottish Widows reveals that 89 per cent of parents who have lent or given a large amount of cash to their grandchildren or adult offspring had to dip into their investments or savings accounts to do so. Over one in six parents admit they have increased their levels of debt in order to help out their loved ones. This has resulted in 11 per cent of mums and dads having to put a stop to stashing their cash away in a savings account. And 22 per cent now have to rein in their everyday spending. But older kids are also asking for help with larger purchases. Indeed, 30 per cent admit they needed cash given to them to buy a home.

Commenting on the findings, head of savings and investments at Scottish Widows Gordon Greig says: "Whilst some parents have prepared for this financial handout, there are some who won't be in the position to replace these savings. Not only does this leave parents vulnerable to any unforeseeable circumstances such as salary cuts or job losses, it can also affect them in retirement, meaning they may have to work longer, or make their retirement savings stretch further."

But prepared Britons who took out PPI when they were given a loan may now find that they are eligible to make a compensation claim after the Financial Services Authority (FSA) has announced that firms have to stop selling single premium PPI with unsecured personal loans.

Compensation clampdown

Many customers have discovered after being sold PPI that they were subsequently not eligible to make a claim should their financial situation alter or they were, in fact, mis-sold the insurance. For example, the Daily Mail notes that in the case of Alan Rudd - who had to quit his job because of a muscle-wasting disease - he was unknowingly forking out for PPI premiums of £2,000, on top of his repayments for a £10,000 Black Horse loan. Because he is not in employment, Mr Rudd is unlikely to be able to claim on his PPI policy, the newspaper says. He alleges that he was never informed that he would be paying out for PPI and only realised after reading an article about the mis-selling of such insurance. Lloyds TSB tells the resource that it treats customer complaints seriously and Mr Rudd was aware of what he was paying for. The concerns are that individuals are told of the benefits of PPI when taking out a loan, which panics them into buying a policy before they have the chance to seek advice or shop around. The FSA wants lenders to withhold from bringing up PPI until seven days after a loan is sold.

However, speaking to the Daily Mail, Ms Bowyer says that she is witnessing a variety of tactics used by PPI providers to reduce payouts, delay compensation or slow the compensation process altogether.

"Some companies send all cases to the FOS, but, worse, they then seek a senior ombudsman's opinion every time an FOS adjudicator rules that the company has mis-sold PPI. It means they delay the process as long as possible, hoping complainants give up," she states.

What can people do??

Individuals who feel that they were mis-sold a PPI policy or are eligible for compensation for any other reason should first contact the company who sold them the insurance to see if the matter can be resolved, the FOS advises. However, if this does not help, individuals may want to research PPI on the before taking further steps. If they feel that they have definitely been mis-sold PPI then they should telephone the FOS on 0845 080 1800 for further information. Many Brits are fighting for their cash, with Tony Boorman, principal ombudsman at the FOS, recently revealing that since September 2007, more than 500 complaints each week have been received regarding PPI.

Concluding, he says: "It is clear that many firms have had sales processes designed to maximise profitable sales and commission - rather than to focus on meeting the real needs of the customer. The Competition Commission has calculated that consumers have been overcharged by £1.4 billion a year [from PPI]."

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