Payment Protection

The Financial Services Authority, the regulator of the country’s financial services industry, has announced that it will be fining major banks and lenders up to £1M for mis-selling payment protection insurance. If you have been mis-sold payment protection insurance, you may be able to claim compensation from your lender with regards to payment protection insurance mis-selling for store cards, credit cards, loans and mortgages.

What is Payment Protection Insurance ?

Payment Protection Insurance (PPI) is a form of insurance taken out to cover the payment of a specific debt. Traditionally, a PPI policy is meant to cover repayments of the attached debt should the borrower fail to be able to meet the payments due to loss of income through redundancy, unemployment, illness or disability. A policy may typically pay out after a deferred period of 1, 2 or even 6 months, and continue to pay for up to a year should the loss of income remain.

The most typical forms of PPI are Loan Payment Protection, where your loan payments or more commonly the interest part of the loan payments are met by the policy; Mortgage Payment Protection, where your mortgage payments are covered; and Store and Credit Card Payment Protection, where either your minimum payment or interest payment are covered.

Both Accident, Sickness and Unemployment Insurance and Income Protection Insurance are often included under the PPI banner, although these are separate stand-alone insurance products meant to cover a range of debt commitments.

What are the issues with Payment Protection Insurance ?

Due to the competitiveness of the financial industry, lenders are having to reduce their lending rates to attract new and retain existing customers. This is causing a drop in revenue due to lenders having smaller margins on loans, credit cards and mortgages. PPI, although sold as a safeguard for borrowers, may just be seen as a way for lenders to increase their income from selling loans, credit cards and mortgages.

Some PPI policies offered by lenders may be unsuitable to borrowers in certain circumstances. Policies may not be suitable for the self-employed if they only cover redundancy. Some are so full of exceptions and exclusions that borrowers are often unable to make a claim if the worst does happen.

PPI policies sold by credit card companies, banks and lenders can be overly expensive and are sometimes forced upon the borrower as part of the approval process or hidden within the debt repayment schedule. Debts may be increased by up to a third when factoring in PPI payments.

What is Payment Protection Insurance mis-selling? How do I know if I have been mis-sold Payment Protection Insurance?

The plain fact is that a number of PPI policies sold to protect borrowers from their debt in reality offer no protection at all and are simply a revenue stream for the lender. Borrowers may be unaware they are even taking out PPI as they go through the application process.

Lenders may offer low rates that are only commercially viable to them with the addition of a PPI policy and the may also mis-sell PPI policies with sweeping statements such as 'Will pay off your debt' or 'Will safeguard your family' when in fact the product they are selling may be completely inappropriate to the borrower and offer no such security.

Can I claim compensation for Payment Protection Insurance mis-selling ?

If you feel that, when you were sold your PPI policy, the salesperson failed to explain exactly what you were purchasing, or you were forced to take out the PPI policy by your lender, you may be able to claim compensation. Also, if you were sold an unsuitable policy while self-employed, unemployed or retired, you may have a case for mis-selling as your circumstances at the time of sale may mean that you cannot claim on the PPI policy in certain circumstances.

Where can I get more Information and Advice ?

We have collected together the latest news and views relating to payment protection insurance here. Alternatively call us on 0845 271 4005 where our staff will be happy to answer your questions.

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