Payment Protection Insurance, or PPI, is a legitimate and potentially very useful kind of insurance for a borrower. An effective PPI policy will make payments on a debt, or even pay off the debt, if the borrower experiences some kind of financial hardship, such as an injury or a layoff.
The problem with PPI is that in the UK, a huge number of the 20 million policies could be categorized as mis-sold PPI – that is, nearly half of PPI policy holders where paying for policies that, for whatever reason, they were unqualified to ever take advantage of in the situations payment protection insurance is supposed to insure against. Nearly as many holders of the policies were unaware that they were ever sold and were paying for the insurance at all.
This came about due to a practice widespread in the UK the financial industry where payment protection insurance would be essentially tacked on to a loan, mortgage, or other financial instrument with only the slightly of indicators that it was ever included. Lenders were not adequately assessing their customers and whether they would ever qualify to redeem a policy, nor were they taking sufficient efforts to inform borrowers of what they were buying and what their other options were.
Due to these bad practices regarding the sale of PPI as well as idiosyncrasies with the policies themselves, it had one of the highest claim rejection rates of all types of insurance. For example, in the fine print of some policies, it was stated that if a single payment were made on a debt after a period of unemployment began, the policy holder could no longer make a valid claim to their payment protection insurance. That is, if someone lost their job and attempted to stay current with their debts instead of immediately making an insurance claim, they were unable to ever make a claim if their financial situation did not improve.
The banks themselves often had substantial incentive to mis-sell this insurance to as many customers as it could: due to the extremely low successful claim rate, banks and lenders made sizable commissions on every policy they “sold,” whether the customer was aware they bought it or not.
The scandal broke in the late 2000s and moving into the early teens, where the British Bankers’ Association lost several key court rulings and had to establish sizable funds to respond to accusations of mis-sold PPI. Due to the extremely high number of claims made, claim management companies sprang up that processed the paperwork and legal aspect of individual borrowers’ accounts in exchange for a sizable percentage of any compensation (usually about 30-40%).
In April 2011, another court ruling forced banks to examine old PPI sales for legitimacy whether or not the customer ever complained, further adding to the scandal and increasing the cost to the banks. In 2011 and 2012 alone, nearly three million claims of inappropriately sold PPI were made.
Mis sold Credit Card PPI
So what should a borrower do if he or she is not sure if he possesses a potentially mis-sold PPI policy? For credit cards, the first thing you should do is locate your credit agreement. If you do not have it, either because you misplaced a current credit card’s policy or the account was closed in the last six years, you can pay £1 to receive another copy from the lender. You can also check your old statements, as PPI should be itemized. It may be labeled as “payment cover, “ “protection plan,” “ASU,” “card insurance,” or other similar labels.
Due to the high number of claims, most lenders have a special phone number PPI customers can call to receive answers about their policy and what actions to take. You will need your account details to access these systems: the account number can be taken off your credit report if you have no other way of getting it, but remember that companies only retain that information for six years.
If you find that you have been paying for PPI, you must then attempt to determine if it was sold to you inappropriately. If you were working part time, self-employed, retired, a student, in the civil service, or unemployed when it was sold to you, it was likely mis-sold. If you were pressured into purchasing it – including if you were told your application was more likely to be approved if you purchased it – you likely have a claim. If you possess any pre-existing medical conditions, any PPI claim you made would probably have been immediately denied, making it inappropriate that were sold the policy. Finally, if you have no memory of ever buying PPI at all and yet you find it on your statements, you were almost assuredly mis-sold it.
If you believe you have a claim against the lender for inappropriate handling of PPI, you have two main choices. If you are comfortable navigating the legal labyrinth and paperwork associated with making a claim, you can do so entirely on your own. While resources exist to help customers going this path, it is inarguably more work, though you do get to keep the entirety of any awards paid. Alternatively, a claims management company can handle your case for you: they process your claim and handle all aspects on your behalf, in exchange for receiving payment from any compensation.
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