PPI Mis-selling Guide

You’ve most probably heard from TV adverts or people you know about ‘mis-sold PPI insurance’ on credit cards and loans and how you may be able to reclaim money that it is owed to you.

But what exactly is PPI? How do you know if you have it, or even had it? How do you know if it was mis-sold, and how should you go about making a claim if it was?

Our comprehensive guide aims to explain clearly what the situation with mis-sold PPI is, why it has in some cases been mis-sold and what you can do to reclaim your money.

  1. What is PPI?
  2. How do you know if you’ve paid or are paying PPI?
  3. What does ‘mis-sold’ actually mean?
  4. What’s wrong with PPI, surely it sounds like a good idea?
  5. How much is a typical monthly PPI payment?
  6. Why was PPI mis-sold?
  7. How may PPI be mis-sold?
  8. How can I tell if I’ve been mis-sold PPI?
  9. How do I claim back mis-sold PPI?
  10. Frequently Asked Questions

What is PPI?

If you’ve ever taken out a loan, and that includes borrowing money on a credit card, it’s likely that you will have been offered something called Payment Protection Insurance, more commonly known as PPI. This form of insurance is designed to cover your repayments for one year in the event of you being unable to meet them. This might be because of unemployment, sickness or accident.

PPI may have been sold to you alongside a new loan, mortgage, credit card or store card, and may be called a number of different names like ‘payment cover’, ‘protection plan’, ‘loan protection’ or ‘loan care’. It could be shown as a one-off payment at the start of the loan, or an extra monthly fee, but the bottom line is that it’s all PPI.

How do you know if you’ve paid or are paying PPI?

If you’re not sure if you have paid PPI on a past loan or are paying it now, look at the paperwork sent to you at the time you took out your loan. If you’re still not sure, contact your lender or finance provider and ask them whether you have PPI.

What does ‘mis-sold’ actually mean?

Payment Protection Insurance is something that you may well have wanted to take out to insure yourself against these eventualities and to protect your payments in the event of illness or redundancy. However in many cases, high-pressure tele-sales people persuaded consumers to take out PPI even if they didnt need it, or their circumstances dictated that they could never claim on it. The UK Courts have decided that PPI has in many cases been added to people’s loan repayments when they didn’t want or need it, in other words, it has been ‘mis-sold’.

The PPI insurance will have added additional costs onto your loan repayments and if you were mis-sold it, you can claim back all that money back.

What’s wrong with PPI, surely it sounds like a good idea?

Lots of things, including:

  • Not being able to claim on it: The self-employed and students, for example, often can’t claim if they are unable to keep up payments due to illness or unemployment, but they were still sold and paid for the insurance.
  • The cover runs out: Before it was banned by the Competition Commission, single premium PPI (SPPPI) was often added as an upfront lump sum to the loan. Most PPI policies only last for five years, so if your loan or finance agreement term lasted for longer than this, you’ll still potentially be paying interest on insurance that has long since expired.
  • It’s over-priced: Adding PPI to a £7,500 five-year loan could cost a wholly disproportionate additional £2,000-£3,000.
  • There is a short pay-out period: PPI linked to mortgages, credit cards or store cards usually pays out for a limited amount of time only, often just 12 months.
  • Cover levels are too low: On some credit card PPI contracts, the insurance only covers the minimum monthly payment, meaning the overall balance may never reduce.

How much is a typical monthly PPI payment?

PPI for a loan is typically between 15 and 30% of your loan. If you took out a £5000 loan and your PPI was 15% of the balance, your PPI would total £750.

Why was PPI mis-sold?

Financial institutions want people to take out PPI on loans simply because it means more profit for them. In some cases, companies put pressure on their sales people to push PPI and that led to mis-selling.

How may PPI be mis-sold?

The chances of getting back your PPI depends to a certain extent on how you signed up for your loan. If you applied for your loan online then reclaiming your PPI may be more difficult because the full terms and conditions were likely to have been available. The onus would have been on you to read everything and understand the full terms of your loan before you agreed to it. But there is an exception – if you signed up with a provider that used pre-ticked boxes in the application form, you may have been required to ‘uncheck’ the box rather than ‘check’ it.

This practice has been ruled unacceptable, but in practice, will you remember if the lender you were using did this. In July 2007 all lenders agreed to stop this practice, but if you took out a loan before this date you may have bought insurance without knowing it by not unchecking the box. In this event you have a good case for reclaiming your PPI.

If you applied for your loan over the phone or in person, the responsibility lies with the salesperson to make sure you fully understand the terms and conditions of any PPI and that this insurance policy was appropriate for you. This also applies if you took out the policy online but were later telephoned about the insurance.

In some cases people have been told that PPI is a compulsory part of the loan but that is not the case and claiming that it is compulsory counts as mis-selling.

How can I tell if I’ve been mis-sold PPI?

You may have been mis-sold PPI if:

  • It was not made clear to you that the insurance was optional.
  • You were not told about significant exclusions under the policy – e.g. you wouldn’t be covered for any pre-existing medical condition.
  • If you were sold a ‘single premium’ policy – where the whole cost of the loan is paid for up front with money that is also borrowed at the same interest rate as the loan. In this case you should at least be able to get a refund by cancelling the PPI. If you cancelled or repaid the loan early, but were unable to cancel the PPI, then you can claim for a refund
  • It was not made clear to you that the insurance cost would be added to the loan and you would be paying interest on it (if you were sold single premium PPI).
  • That you were not told the PPI cover would run out before the loan was paid off (if this was the case).
  • You bought PPI after 14 January 2005 and the loan adviser tried to persuade you to take it out by saying something like ‘we strongly recommend that you consider taking out PPI’. This counts as an ‘advised’ sale and they should have issued a written statement to show why a policy is suitable for you.
  • You were older than the age limit for your policy (usually 65 or 70) when you took the insurance.
  • You were sold PPI by one of the firms that has already had FSA action taken against it.
  • You already had alternative cover that could insure your repayments, like income protection or an employer illness or redundancy package.
  • PPI was added to your loan or mortgage without you being told about it.

How do I claim back mis-sold PPI?

If you think you may have been mis-sold PPI you have a choice on how you attempt to claim back the money you spent on the PPI.

You could use a Claims Management Company (many advertise on TV). This can be easier because they do all the writing letters and chasing, but be aware that for this service they take a commission on any money you get back. It is strongly advisable not to use companies that demand an upfront payment for their services and to use a reputable one that only takes a commission if they are successful with your claim.

You don’t need to use a Claims Management Company and can handle it all yourself. It really just involves writing a few letters and many independent financial advice websites can take you through the procedure step-by-step.

Frequently Asked Questions

I want to claim – who do I write to?

To make a claim the first thing you need to do is write a letter of complaint to the firm that sold you the insurance in the first place giving all the reasons why you believe you were mis-sold the PPI. There are many template letters online that can help you compose your complaint.

Don’t give up if the firm you write to replies and say they disagree with you and that you were sold PPI legitimately. There have been many cases where firms have tried to claim PPI sales were valid only to back down when challenged to produce evidence, so write again, repeating your reasons for believing the PPI was mis-sold and demanding that they resolve the issue within 14 days.

If this is not successful, take your complaint up with the Financial Ombudsman Service, again stating your case.

How much money could I get back?

If the loan company or the Financial Ombudsman Service agree that you were mis-sold PPI you should get back the total amount of premiums you have paid, with interest added.

I would like to claim, but…

…I’m sure who I took the loan out with.

Get a copy of your credit report. It lists all the financial products you’ve had over the last six years.

…I’ve lost my paperwork.

Get a copy of the original agreement for your lender, which they must send you according to the Credit Consumer Act.

…I took out my loan over 6 years ago.

As long as you were still paying back the loan under 6 years ago, you can still claim.

Some of the companies fined for ‘not treating their customers fairly’

Company

Amount of Fine

Reason

Swinton

£770,000

Serious failings and an unacceptable level of non-compliant sales (on cover for home or motor insurance) between Dec 06 and Mar 08

Alliance & Leicester

£7 million

Serious failings in its PPI telephone sales between Jan 05 and Dec 07

Liverpool Victoria

£840,000

Serious failings in the sale of single premium PPI on telephone loans sold between 14 January 2005 and 8 August 2007.

Land of Leather Ltd

£210,000

Allowing its sales force to sell PPI, between May 2006 and Feb 2007, without effective monitoring or training.

HFC Bank (sometimes trading as ‘Household Bank’ and ‘Beneficial Finance’

£1,085,000

Putting customers at an unacceptable risk of being sold PPI when it was not suitable for them between Jan 2005 and May 2007.

Capital One

£175,000

Failing to ensure that 50,000 customers buying credit cards and loans between January 2005 and April 2006 received important information about the policy.
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