A high court judgement has left the banks reeling. Thousands – probably millions – of Payment Protection Insurance (PPI) policies on credit cards, mortgages and loans have been mis-sold over the last six years and now judges have ruled that customers can claim their money back.
When PPI is sold alongside a debt based product from a bank, the regular repayments are met by the insurer for a set length of time – usually a year – should the customer find that they are unable to meet the repayment themselves because their personal circumstances have changed. Most often, policies cover for when a claimant has their employment terminated because of injury, redundancy or dismissal.
But the world of PPI has been a source of much contention for years. Many people have been sold policies which they were not even eligible for and would never be able to claim upon – those that were unemployed when they took out the policy or those that were self employed, for instance. They only found out when they came to claim and were pointed to the small print while being reminded that the onus was on them to make sure they met the criteria. Some were pressured into taking out a policy through the promise of lower interest rates or were told that the policy was an obligatory part of the loan. More people still were not even aware that they paid for and held a policy at all – it was simply costed into the loan.
All this has led to PPI becoming one of the least claimed upon insurance lines for the bank and therefore one of the most profitable products in their stable; some sources put the overall margin on the PPI industry at 80 per cent. Couple that with figures from the Financial Services Authority of around seven million PPI policies sold in the UK every year and you start to get an idea of just how valuable this market is.
Power to the people
New rules were brought in by the FSA a couple of years ago which state that the banks must fully explain the details of a PPI policy to customers at the point-of-sale and that they have to talk through it, rather than just passing on the details in document form. The banks must properly assess that a customer matches the eligibility criteria for the product and the policy must now be sold separately, rather than as a package with the loan.
And now, after years of pressure from consumer groups, High Court judges have ruled that banks and other sellers of PPI policies – car financiers for instance – must invite customers to apply for their money back, plus interest, where they have been mis-sold a PPI policy since 2005. With the new rules forming the baseline of what counts as fair practice, the banks threatened to appeal, largely on the basis that they felt it would be unfair to be punished retrospectively against rules brought in after the transactions had been completed. Most have now announced that they will accept the ruling, though, and millions of pounds worth of compensation has already been paid, with the Financial Services Authority stating that 95 per cent of claims have been successful. There has been reports in the media of individuals receiving tens of thousands of pounds in compensation and analysts estimate repayments could end up costing the banks up to £9bn in total.
Circumstances that now render a policy mis-sold include:
- Being sold a policy while unemployed or self-employed
- Being sold a policy without being asked to disclose any knowledge that you would be unemployed or retired before the end of the policy
- Being sold a policy when you were aware of and disclosed or were not asked to disclose a medical condition which could lead to loss of income
- Being pressurised into taking out a PPI policy to heighten the chance of borrowing approval or for a lower interest rate
- Being unaware that you had been sold a policy at all
- Having been sold a policy when you had other insurance products in place that would have met the repayments
- Having not been told that the policy would not run the full term of the loan.
How can you claim?
The PPI sellers have been told that they must trawl through their records and identify customers which may have been mis-sold policies. Those identified will receive letters outlining how they can make a claim. But anyone who has taken out a PPI policy over the last six years is entitled to lodge a claim, whether or not they receive a letter.
As established earlier, many people will be unaware that they ever had a policy. Therefore, the first thing to do is to go through the paperwork of any loans, credit cards, mortgages or other financing products you've had over the last six years and try to find evidence of a PPI policy. If you no longer have the paperwork or it isn't clear whether you held a PPI policy you can contact the institution from which you took the loan and ask them to check their records.
If you have had a policy, there are two options: making the claim yourself or employing the services of one of the deluge of companies that have sprung up since the decision offering to claim on your behalf. These claims handlers, now littering the internet and seemingly indiscriminately cold-calling every man and his dog with automated sales pitches, will charge anything up to 30 per cent of any compensation you receive as their fee. Most operate on a 'no-win-no-fee' basis but some will also charge a separate up-front administration fee. The Financial Services Ombudsman has stated publicly that utilising the services of these middle-men does not improve a claimant’s chances of success.
To take on the claim yourself:
- Start by writing a letter to the institution that sold you the policy stating the reference numbers of the policy or policies in question, the relevant dates and the reasons why you think you were mis-sold to.
- State how much you are claiming for and include interest of eight per cent – the statutory figure the courts would award should they judge in your favour.
- In your letter you should request a response within eight weeks and let it be known that you will approach the Financial Ombudsman Service if this time frame is not adhered to.
- It helps to provide as much as evidence as you can to corroborate your stance that you were mi-sold the policy but the onus will now be on the bank to prove that the transaction was completed in the correct manner.
- The selling organisation should then respond to you and either accept your claim and meet it in full, offer to reimburse you to a lesser degree which they deem to be fair, or reject your claim and explain to you why they have reached this decision.
- If you don't feel their offer was indeed fair or that your claim was wrongly rejected, write back to the company stating your reasoning for this belief and this time ask for a response within 14 days.
- If you are still not satisfied with the subsequent response or one fails to materialise you can then appeal to the Financial Services Ombudsman Service who will investigate and initiate legal action if they see fit to. Instructions on how to do so are detailed on the organisation's website.
Remember
This decision by the courts is not an indictment of Payment Protection Insurance products themselves, only of the manner in which they have been sold. The proposition remains a sound one if a borrower has any cause to doubt the security of their long term income and if they don't have another way to meet repayments if that income is indeed truncated.
Author: KYM Editor
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