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An explanation of PPI mis-selling
By Billy | December 29, 2009
PPI is an insurance policy which helps borrowers who have taken out loans and credit cards and who are unable to work. Millions of such policies have been sold to UK consumers over the past decade.
PPI is now a big talking point. One of the major reasons for this is because the UK population is aware of the widespread mis-selling of these policies. After the scandal of the endowment mis-selling of the 1990s we are faced with yet again another scandal and the problem appears to be a lot more widespread. It appears that many financial organisations have not learned the lesson of past misdemeanours.
So why is everyone talking about PPI? Well, the main problem with this insurance is the cost and lack of flexibility. Single premium PPI is added on top of the original loan amount. What this means is that the PPI insurance attracts interest as well as the loan.
When selling insurance to consumers, financial institutions should give them the full facts, especially if it influences their decision to buy the policy. One huge disadvantage with PPI is that it is so expensive. Instead of one monthly affordable payment, consumers are having to borrow more to pay for the insurance. What’s more, if the customer wants to terminate the loan early, they lose a lot of the money that has been paid into the insurance policy.
Another aspect of misselling is that many of these loans extend beyond the five year period of the insurance policy. So if someone takes out a loan over a 120 month period, they will only be covered for half the duration of the loan. The customer would then have no insurance cover for the rest of the loan.
Another great concern with payment protection insurance is that it only pays out in limited circumstances. Some medical conditions are not included. Also, anyone who didn’t have a full time job will probably find it difficult to claim for unemployment.
However, the issue isn’t simply with the product but the way it was incorrectly sold to people. One huge problem is that people were pressurised into taking out PPI before the loan was approved. People who take out loans often need the money quickly so they are often at the mercy of pusy salespeople and are pressured into accepting whatever recommendation is put to them.
The FSA has cracked down on the sale of payment protection insurance. It wrote to major lenders in February 2009 asking them to withdraw the sale of the product as soon as possible and no later than 29 May 2009. The regulator is focussed on how the product is sold and whether the sales process is fair to consumers.
More recently, the FSA has stepped up its intervention into the sale of PPI. It has issued new guidance regarding the way lenders are treating complaints about PPI and has also ordered a review of previously rejected complaints.
Several lenders have already been fined by the FSA due to the poor sales practices. Now other financial institutions are acutely aware of the need to monitor their sales process.
An alternative to single premium PPI is to purchase one that has a fixed monthly payment. These policies tend to have less stringent conditions for making a claim and also tend to be less expensive. They are not rolled up into the cost of the loan so the customer could easily cancel the policy at any time without losing out financially. Having said that, with all insurance policies, it is worth checking the small print to see whether there are circumstances where you are not covered by the policy.
So what does a consumer need to do if they find that they have been missold PPI? Well, the first thing to check is whether the policy was sold before 14 January 2005 or after January 2005. Anything sold before this date is classed as an unregulated sale and will be subject to different rules. What this means to the consumer is that they need to be aware when making a complaint whether the sale of the policy is classed as an “advised” sale or a “non-advised” sale.
Once this has been established, the consumer will then need to ensure that they have the documentary evidence relating to their claim. The most important details to have are the loan agreement number, the date of sale of the policy, the term of the loan and the total cost of the insurance policy.
A complaint will need to be carefully drafted based on the consumer’s personal circumstances at the time of sale. It can also be helpful to have a basic understanding of the Statute of Limitations Act, the Misrepresentations Act and the ICOBS provisions as they relate to payment protection contracts.
Customers need to understand that a complaint may not go the way they planned it. There are rules governing what constitutes a final decision and there may be options which allow the consumer to appeal against the decision. In some circumstances, complaints can be appealed through the Financial Ombudsman Service, which itself has different levels of appeals.
To simplify the whole process, a consumer can contact a claims company who can handle their mis sold payment protection claim on their behalf. A claims management company should have the relevant knowledge and expertise to push many claims through successfully. Some consumers may not have the time and energy for a protracted battle with their lender, so leaving it in the hands of a specialist company may be a good option to take.
Topics: Real Estate Buying, Real Estate Selling |
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