When taking out a loan it’s always a good idea to stop and think about how you would repay it if you became ill or lost your job. If you would have no other source of income in those circumstances, it may be worth considering Payment Protection Insurance (PPI).
For many people who applied for credit, though, PPI was either added to their borrowing without their knowledge or was sold inappropriately, meaning a claim would never have been paid. And this is how the recent scandal over PPI arose.
It should be noted, however, that while PPI has been condemned in many cases, it is important to ensure that any loans you take out are adequately covered. PPI can still be a good option, but it is essential to compare the different providers on the market to make sure you get the insurance that is right for your individual circumstances.
PPI has been around for decades and slowly grew in popularity. At its peak, the industry generated around £5.5 billion every year.
But the boom was not to last, as in 1998 consumer champion Which? highlighted issues with the product because of its relative expense and numerous exclusions. Over the next seven years, various media publications picked up the cause and ran numerous critical articles about the cover.
It wasn’t until the Financial Services Authority took on the responsibility for regulating the sales of general insurance products in January 2005 that things started to go really wrong for the sector.
The First Official Review
The FSA released its first report following its PPI investigation in November 2005. It heavily criticised the industry after identifying problems with compliance as well as negligent selling practices. A letter to the chief executives of all the companies concerned was sent out by the FSA detailing their concerns.
Fines Are Issued
Almost 12 months later, in October 2006, the FSA issued the first set of small fines for PPI failures relating to mis-selling breaches of regulations.
In the same month, the FSA discovered further evidence of compliance issues and, simultaneously, the OFT published its concerns around PPI and confirmed it would be referring the matter to the Competition Commission.
Between January 2007 and October 2008, the FSA issued increasingly hefty fines to small and large firms for the way in which they had sold and administered PPI. During this period, Which? published a number of reports showing how many people were sold the cover when they would have been ineligible to claim.
The Beginning of the End
In January 2009, the Competition Commission vetoed selling PPI at the same time as a loan and in response Barclays formally objected. By May 2009, the FSA had also banned the sale of single-premium PPI and in September released new guidelines for complaints handling.
The banks stood to lose billions of pounds under the new guidelines and in January 2011 challenged the findings in court, a case which they lost in April 2011.
After the British Banking Association decided not to challenge the ruling in May 2011, the floodgates opened for disgruntled customers to claim their money back.
Although there are a number of firms offering to negotiate PPI refunds, it is entirely possible to make the claim yourself and avoid the substantial fees companies charge for the service. To make a claim, all you have to do is contact the PPI provider to explain why you feel you were mis-sold the product. Some companies have pledged to pay out without quibble.