A brief history of Payment Protection Insurance
Payment Protection Insurance (PPI) isn’t a bad product in essence. It’s designed to meet repayments for a year in the event of accident, sickness or unemployment. The problem is the way it was sold to people, especially to those who would never be able to make a claim such as the self-employed, unemployed, retired; those with pre-existing conditions or who are covered elsewhere have all commonly been sold unnecessary policies. The mis-selling has often been systematic, banks forcing staff to sell these policies or face lower pay or reduced bonuses. In an era where bonuses came first, it was easy for bankers to make commissions out of this cover. The mis-selling of expensive Payment Protection Insurance (PPI) alongside these products has been common. Lenders like Egg & Alliance and Leicester have had fines of Millions of pounds – a far way off the billions of pounds they have made selling the policies. Worse still in June 2008, after a 15 month investigation into PPI, the Competition Commission found the following average insurance payout ratios apply:
• Car Insurance: 78%
• Home Insurance: 54%
• Mortgage PPI: 28%
• Personal Loan PPI: 15%
• Credit Card PPI: 11%
So, for every £100 the lenders take in premiums, the profit made is:
• Mortgage PPI: £72.00
• Personal Loan PPI: £85.00
• Credit Card PPI: £89.00
List of reasons why PPI has been mis-sold.
Was your policy mis-sold?
If you answer adversely to one or more of these questions, then you may have been mis-sold PPI.
• Were you made clear of the fact that PPI was optional?
• Were all the exclusions explained properly – i.e. pre-existing medical conditions or self-employment issues?
• Were you made aware that you would be paying interest on the PPI policy?
• Were you advised that you may not be covered for the entirety of your loan?
• Did the lender enquire as to whether you already had sufficient cover in place?
• Did you even know you were paying for such a policy?
• Were you unemployed, self-employed, retired or a student at the time of sale?
• Were you eligible for sick pay from your employer?
• Did the lender try to persuade you to take out the policy by offering better rates on the loan?
• Did the lender advise you to take out the policy?
• Did the lender tell you that you would not be eligible for credit without the cover?
• Were you told PPI was compulsory?
This is not a full list of reasons just some of the most common reasons. The list goes on. Banks and financial institutions can often use legal staff to refuse a mis-selling claim which is why using expert claims managers like us may be a good option for you.
What is PPI mis-selling?
Almost all PPI claims recovered fall into the category of mis-selling. This term covers many situations but generally refers to customers who have been sold payment protection insurance that they will never be able to benefit from the policy – or where the total cost was so significant that it is considered highly unfair.
The reason why policy holders would not be able to claim includes:
• Existing cover exempt – One of the most common cases of PPI mis-selling occurs where a loan applicant was sold payment protection insurance when they were already covered by their employer or by an existing policy. This category covers:
• Doctors / nurses
• Armed forces
• Emergency services
• Government employees
• Teachers
• Income exempt – Any policy holder with a low income, irregular income or no income at all would not be eligible to make a claim against their policy.
• Unemployed
• Self employed
• Students
• Contract workers / part-time workers
• The retired
• Mis-information exempt – Any customer given false or misleading information by the financial provider is entitled to a refund and compensation. This includes, but is not limited to customers who were:
• not offered a loan without PPI.
• not properly informed that they were taking out PPI.
• not properly informed that they would be paying interest on their PPI.
• not informed that cheaper insurance could be purchased elsewhere.
• not informed that the insurance policy will only run for a specified length of time.
• Medically exempt – Any policy holder that has a history of medical illness will not be eligible to claim.
Which lenders have been fined?
Alliance & Leicester were fined £7million largely due to the fact that telephone sales staff had failed to make it clear that insurance is optional. Staff training tactics include aggressive sales techniques aimed to put pressure on the customers who questioned PPI.
Egg, a large credit card company, has also been fined £721,000 by the Financial Services Authority due to serious failings in approximately 40% of their telephone sales to customers. Cases have been reported where PPI was added to customers’ credit cards even without their consent. For those customers who turned down PPI, they were met with sales staff using ‘objection handling’ techniques taught in training sessions which included over-emphasising the benefits of PPI or advising them that they could cancel at a later date if they decided they did not need it. Egg is likely to pay out a substantial amount of compensation which is estimated to total around £1.67million for every 10% of customers who receive a refund as a result of inappropriate sales techniques.
Capital One is also a major credit card provider and in 2007 they were fined £175,000 for the mis-selling of PPI. The FSA has said that Capital One have failed to provide ‘adequate systems and controls’ when they sold the insurance product.
GE Capital Bank was also fined £610,000 for the same reasons and also for failing to treat their customers fairly.
Liverpool Victoria Banking Services (LVBS) were fined £840,000 plus compensation for unclear and misleading sales practices relating to PPI. The FSA found over 60% of 97 sales calls to be non-compliant as the cost of PPI was added to agreements without the customer asking for it, consenting to it or even knowing about it. When reviewing the calls, the FSA found that, if a customer stated that they did not need or want to purchase the insurance and objected to the sale, LVS representatives would pressure them into accepting the product. LVS are also under investigation for mis sold mortgages. Even more disturbing, the cost of the premium was added to the loan and so customers had to pay additional interest on the unwanted product too.
HFC Bank were fined £1,085,000 for failing to take reasonable care to ensure that the advice provided to customers when purchasing PPI was suitable, and for failing to have adequate systems and controls in place to monitor the sale of PPI and the AA has been branded the company to offer the most expensive PPI policies by the Times online.
Black Horse are also amongst the list of lenders being accused of mis-selling PPI with the main allegation against them being that the interest rate they offered to customers who chose to take out PPI was significantly lower than the interest rate on the same loan amount for those who didn’t want PPI.
Three firms: Regency, Loans.co.uk and the Home Shopping firm Redcats have also been handed fines for mis sold mortgages and selling payment protection insurance to customers that may not have needed it. Redcats were fined £270,000.
It is strongly advised that anyone who has a loan, credit card or mortgage should check their agreement to identify whether or not they have a Payment Protection Insurance policy. If this is the case and you think it could have been mis sold to you, then you should consider making a complaint.
FSA PRINCIPLES
On the 14 January 2005, the FSA began to regulate the sale of Payment Protection Insurance. This meant that the sale of this insurance became covered by the jurisdiction of the FSA and the sales process had to fulfill the basic FSA Principles of Business and treat customers fairly.
There are 11 Principles of business which must be adhered to when selling these policies:
1. Integrity – A firm must conduct its business with integrity.
2. Skill, care and diligence – A firm must conduct its business with due skill, care and diligence.
3. Management and control – A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
4. Financial prudence – A firm must maintain adequate financial resources.
5. Market conduct – A firm must observe proper standards of market conduct.
6. Customers’ interests – A firm must pay due regard to the interests of its customers and treat them fairly.
7. Communications with clients – A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading.
8. Conflicts of interest – A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
9. Customers: relationships of trust – A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.
10. Clients’ assets – A firm must arrange adequate protection for clients’ assets when it is responsible for them.
11. Relations with regulators – A firm must deal with its regulators in an open and co-operative way and must disclose to the FSA anything relating to the firm of which the FSA would reasonably expect notice.
These rules are supposed to prevent the mis-selling of these insurances by lenders. However, due to the bonus culture and the level of commissions made during the sale of this cover meant that rules were broken and the customer was not treated fairly.
Will I still be covered?
No. If your claim is successful your cover will be cancelled. If you are worried about not being covered in the event of the worst happening, you can speak to a Financial Advisor at RBC Protect who can advise you on an individual basis to ensure you get the right advice and the right cover you need.
What is Income Protection?
Income Protection is a modern day PPI Policy without the jargon or the heavy price attached. Income Protection is designed to be paid for monthly and you are not tied into any term or contarct, so can cancel at any time if you need to. Should you suffer an illness or injury Income Protection would pay an agreed percentage of your salary, usually 60%, for a specified period to ensure you are able to meet your household and monthly commitments. The cover is not related to or to cover one individual type of finance you have but a percentage of your salary.
Make an inquiry with an advisor
