Banks gave up their legal fight to avoid compensating customers who were wrongly sold Payment Protection Insurance (PPI), and have had to set aside £billions in expectation of a claims deluge.
Should you make a claim, and how do you go about it?
Background to the problem
Payment Protection Insurance provides protection to cover a loan or credit card repayments in the event of being unable to work due to sickness or unemployment.
The product itself is not necessarily a bad one, but many offer poor value, and were mis-sold. Many lenders stated that the insurance was compulsory. Indeed they had a right to do this in order to protect their repayments against sickness or unemployment, but the lender had no right to insist on its own product. Many of these in-house policies offered poor value.
Worse than that, many consumers were “forced” to take out these policies even though they were never eligible to claim and therefore had no cover. Examples were those who were, unemployed, retired or self-employed.
Some already had pre-existing conditions, or an illness which prevented them from working, and some had the same cover elsewhere but were not asked if they had existing cover.
What did the regulator do?
The Financial Services Authority (FSA) addressed the PPI mis-selling issue by issuing selling rules, and indeed has already fined providers large sums for poor selling practices.
Adding a single payment PPI policy onto your loan, thus paying interest on your premium, has been banned.
The FSA have also ensured that PPI cannot be sold at the point of loan/credit purchase, so that the consumer has time to compare policies elsewhere.
What does the High Court ruling mean?
The FSA not only altered the rules on how PPI should be sold, but backdated them, thus upsetting the main providers, i.e. the banks.
The reason that the banks have given up their legal fight to avoid compensation claims is that the High Court ruled in favour of the FSA, resulting in the banks having to review past cases, and forcing them to ask their customers if they think they have been mis-sold PPI cover.
However, customers should not wait for their banks to contact them. They should lodge a complaint directly as soon as possible.
Was I mis-sold PPI?
You may have a claim if:-
- If you did not receive all the necessary information, and had it explained to you
- If you only found out that you had PPI when you started to receive statements
- The box on the application form had been pre-ticked
- Were in formed that it was compulsory to take out their PPI insurance
- Your loan would be denied if you did not take out their PPI policy
- Were sold shorter policy term than would cover the loan
- If you would never have been able to claim – i.e. were retired, self-employed or have a pre-existing medical condition
It would be wise to find out if your bank had already been fined for mis-selling.
Who should I complain to?
You must contact the provider first. There are many template letters available on the internet if you need guidance.
They are likely to reject your claim, at which point you should contact the Financial Ombudsman Service (FOS) and follow their instructions.
If the FOS finds in your favour it can order the provider to refund you the premiums you have paid and award anything up to a maximum of £1,000 in compensation.
The process may take months but the FOS have found in favour of three out of every four cases.
We believe, like all financial products, you should seek fee based independent financial advice before proceeding.