Improperly sold payment protection insurance sold by banks continues to remain an issue for the institutions and the individuals to whom the insurance plans were sold. According to the Financial Times, underpaid PPI policies  represent about GBP 1bn. Credit card holders of Lloyds Banking Group, Capital One, Barclays, and MBNA are affected.

PPI cover was originally designed to ensure card holders’ monthly credit card or loan payments were met in the event of the insured’s poor health or job loss. Many customers didn’t understand that they were sold PPI or that they were billed premium fees each month by the credit issuer. According to “Personal Finance: A Practical Approach,” other individuals with pre-existing medical conditions were sold PPI insurance on mortgages, credit cards, and other debt products. Had the individuals wished to make a claim against insurance, the underwriter insurance firm wouldn’t have paid.

PPI Refunds

Although customers have been refunded original monies charged to purchase PPI, the banks haven’t refunded various penalties or other miscellaneous charges added to the card holders’ accounts over the years. Some customers paid PPI premiums for up to two decades.

Thusfar, GBP 15bn has been paid out to account holders and GBP 22bn has been made available to those who were mis-sold these policies. According to BBC, the average customer payout is about GDP three thousand to date.

PPI Redress

According to regulators, Lloyds Bank used an alternative redress (also known as comparative redress) formula to calculate return of PPI premiums. The regulation enables financial institutions to calculate the difference between their single premium payment PPI policy and a less expensive but similar policy! Using this theory, the bank may subtract the cost of their PPI premium policy from the total compensation they’re actually required to pay. This method of calculation means the account holder who purchased mis-sold PPI receives much less than he or she would otherwise.

Related Fines

Lloyds was fined a relatively small figure of four million three hundred thousand pounds because it delayed in the authorized action of giving back money to more than one hundred forty thousand individuals and families sold these insurance programmes. Lloyds acknowledges the firm’s “issues” related to making their PPI customers whole.

Co-Operative Bank, with fewer PPI-related customers, paid just GDP one hundred thirteen thousand for failure to pay these claims.

PPI Repayment Fund

A fund of at least GBP 22bn has been established to refund those customers who were mis-sold PPI insurance. Auditors report that PPI policies were inadequately funded against potential customer claims. As refunds trickle back to card holder accounts, some customers have received substantial four-figure premium plus interest refunds. Some account holders have filed legal claims against the banks and won full policy costs plus additional compensation (plus statutory interest for each year the customer paid the PPI premiums) for the nuisance of paying for mis-sold insurance policies.

Consumer Example

BBC’s report includes an example of a consumer who purchased PPI cover from 1997 to 2012. Although the card issuer, MBNA, returned almost GDP6,000 to the account holder for the PPI premiums paid, the banker didn’t return more than ten percent (about GDP600) charged in late charges and fees assessed to the credit card. According to calculations performed by a claims manager representing the client, the compounded return owed is more than twice the amount previously returned by the bank.

BBC Calculations

BBC broke the story about the potential shortfall. The Financial Conduct Authority (FCA) hasn’t confirmed the numbers. A spokesperson for the agency did confirm that if penalty fees were assessed the card holders’ accounts as a result of mis-sold PPI cover–and the account went over the credit limit as a result–the card issuer should be held accountable.

Analysis of the shortfall was calculated using facts supplied by the banks concerning penalties, borrowing rates, and the number of years some account holders paid premiums on PPI cover. Customers are usually charged much higher annual percentage rates (APRs) on credit card balances. The compounding effect of all the fees is in the vicinity of GDP1bn according to BBC.

FOS Reviews

The manner in which various card issuers have calculated PPI return monies to their account holders seems to differ. The Financial Ombudsman Service (FOS) recommends that anyone with concerns about PPI refunds contact the card issuer with a request to recalculate the amount to be returned.

FOS’ consideration of mis-sold PPI are quite thorough. Several case examples are provided for the benefit of individuals with concerns about repayment of mis-sold PPI insurance policies. FOS has managed about one million PPI reviews to date with an approximate four hundred thousand cases still in process. In 2013, the organisation hired an addition thousand people to manage the case load.


Those with concerns about the return of PPI premiums, interest, penalties, and various other charges should ask the card issuer or lender to review and recalculate PPI compensation owed.


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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.