PPI (Payment protection insurance) is a type of insurance that is usually taken out with a home or auto loan or other line of credit. It provides coverage for a borrower in the event they become disabled or unemployed. The premiums may be charged monthly or the entire cost added to the loan balance depending on the insurer. The insurance doesn’t cover the entire loan balance but a fixed number of payments. PPI usually covers loan payments for 6 to 8 months. Borrowers are expected to secure income to resume repayment within that time. There are a number of restrictions to prevent abuse.

Initially, PPI appeared to benefit both the borrower and the lender, but then various problems began to arise. Numerous reports have been made claiming that insurers failed to provide accurate or complete information concerning restrictions. In addition, a vast number of claims were denied even with evidence that the insured had a valid claim. After their claim was denied, numerous claimants began to challenge the insurers. More than 75 percent of the cases reported to the ombudsman were ruled in favor of the insured. The evidence suggests that insurers falsely denied most of the claims.

Mis-Sold PPI & Compensation

The complaints extend beyond those who attempted to file a PPI claim. A large number of borrowers were not even aware they had PPI. Others stated that lenders provided inaccurate information about PPI. It was discovered that many lenders had added PPI to the borrower’s loan product without informing them. In some cases the borrower was told they were required to have PPI to be approved for a loan. This led many borrowers to agree to the additional charges for PPI when otherwise they would have declined it.

The motivation behind this misrepresentation stems from the fact that lenders generated more income from PPI premiums than from the interest on the loans. Borrowers were paying substantially more for PPI than for the interest on the loans. This equated to significant profits for lenders that they were unwilling to relinquish when the borrower filed a claim. However, as more borrowers became aware that they were mis-sold PPI, Britain’s banks became inundated with complaints. The UK Financial Ombudsman Service reported an increase in PPI related complaints of 149 percent between April and September of 2013 over the same period in the previous year.

PPI Claim Deadline Speculation

Some . The financial regulator stated that they had discussed the possibility of implementing a deadline with the British Bankers’ Association in January of 2013. The measure is still under consideration, but it was noted that such proceedings may take effect in the early part of 2014. The large number of claims management companies that have begun offering their services in exchange for a percentage of the claim has also been attributed to the increase in the number of claims.

Update : FCA Snub Banks PPI Deadline

British banks have reserved in excess of £16bn to compensate claimants who were mis-sold PPI, but the cost could be much greater. Co-operative Bank was recently required to allocate an additional £100m to cover PPI related costs. Scores of complaints have resulted from the way the banks have managed the PPI complaints as well as the delays in sending payments. Lloyds Banking Group was recently charged £4.3m in fines in February of 2013 for failure to provide refunds to thousands of customers in a reasonable time frame. The Financial Conduct Authority has initiated an investigation of how the banks respond to complaints.

With the cost of compensation for PPI claims totaling between £25 and £40 billion, many banks have begun limiting their losses with partial payouts. By offering claimants an immediate payment with a 10 percent reduction of the balance owed, the banks can save an estimated £2bn. They have begun sending letters to borrowers offering “upheld in part” agreements. The letters acknowledge that PPI was mis-sold, but since the lender has determined that some coverage should have been provided, they deduct this sum from the total owed.

PPI Claims Delays

There have been complaints that the letters do not clearly define “up held in part” or the process by which the bank has determined what percentage of the payment should be retained. The letter can easily be misconstrued and interpreted to mean that a full refund has been issued. The letter fails to clarify that the payoff amount not only reduces the total balance, but the claimant is also forfeiting the 8 percent interest they are entitled to receive. The claimant does have a choice of accepting the reduced payout now or waiting the 18 months or longer for an entire payout. Once you agree to one or the other, the decision cannot be changed. Claimants should consider whether the offer extended is in perspective with the amount owed.

In addition to the predatory practices of the banks, claimants are also being swindled by claims management companies. It is estimated that claims management firms have collected more than £5bn in compensation that should have been awarded to those mis-sold PPI. The Financial Ombudsman Service has stressed that a third party is not required to file a complaint. Individuals can do it themselves. Of those who enlisted a claims management firm, 28 percent said they were coerced into following through with the claim. Approximately 27 percent stated that the fees charged were ambiguous.

PPI News

Ombudsman Receives a 1000 PPI Claims Complaints Per Day

Despite a noticeable drop in PPI complaints for every bank except HSBC and MBNA during the second half of 2013, the Financial Ombudsman Service continues to receive more than 1,000 PPI mis-selling complaints each and every day

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Could Home emergency insurance be the next PPI Scandal

Insurance analysts are suggesting that home emergency insurance policies taken out by consumers could be the next battleground over mis-selling.

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FCA Snubs Banks’ Request for PPI Claim Deadline

The PPI claim scandal ravaging the financial world is not going to go away quietly. Banks have been jockeying for a deadline to claims in hopes of cutting loose from their future commitment owed following a rash of mis-sold payment protection insurance.

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Banks looking to redeploy their PPI Claims Handlers

Banks that hired additional staff to sort out payment protection insurance (PPI) claims are looking for ways to use these people after claims are eventually settled.

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Tim Capper reports on Financial Mis-Selling for Maple Leaf Financial. Our aim is to ensure you get honest advice and proper guidance to ensure a suitable recommendation can be made to pursue a financial claim

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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.