As the FCA announced its plans to enforce a deadline for PPI claims, once again the spotlight is shined on what is termed as one of the biggest financial scams to hit the UK in recent times-the PPI scandal. Before we take a look at some of the reasons why PPI was mis-sold, let's start with a brief overview of the PPI scandal itself.
What is PPI?
If you have applied for any type of loan, credit card, mortgage, car finance or any other type of credit, there is a strong likelihood that you paid for a PPI policy to go with it. PPI or Payment Protection Insurance is a policy that was designed to provide financial cover to the policy holder in the event that they were unable to pay off their installments because of any of the following reasons:
This policy was also sold to consumers under the name of credit insurance, loan protection, ASU (accident, sickness and unemployment) insurance, loan repayment insurance, payment cover or account cover. A financial company now cannot sell PPI at the same time a customer is taking out credit. This rule was enforced on 6 April 2012 mainly because of the mass mis-selling of PPI policies that was occurring since the early nineties.
Reasons Why PPI Was Mis-Sold
There are many reasons why PPI policies were mis-sold on a colossal level, but ultimately the major reason is because it was a huge money earner for banks. By selling (or mis-selling) PPI policies, banks were able to generate huge revenue from consumers who were otherwise bringing extremely small amounts of money in, or in some cases no money whatsoever, and in the process costing the bank, as they had to operate their own current account.
Therefore, through the sale of lucrative PPI policies, banks could generate big profits from relatively smaller accounts that were intending on borrowing small loans only. The prime reason for the profit the banks achieved was due to the cost of the PPI premiums, which ranged from 15% to 25% of the loan amount itself.
To understand this further, let's consider an example. Consider that a person takes a relatively small loan of about £5000 over a period of 5 years. The PPI premium for such a loan would attract in excess of £1200. Once you add in the cost of the PPI premium over the course of the loan and the interest it would gain, you realise that the bank made a profit of about £1500 on a loan amount (£5000) which is usually considered to be a small one. When lending facilities like credit cards or loans started applying for PPI, banks started raking in even larger amounts of money.
If you take a look at the number of PPI claims made so far and the total amount that is still pending, the refunds made so far of about £30 billion are perhaps just 10%-15% of the total amount allotted for refunds, which means that many consumers have still not made a claim for the PPI refund they are owed for a variety of reasons. Why are the vast majority of consumers still shying away from making claims for PPI money that is owed to them? That is because most (if not all of them) are yet unaware of having been mis-sold PPI or paying for its premiums. It is important to step forward and make a claim for a refund if you have indulged in any type of borrowing for mortgages or credit cards, regardless of the following:
- Whether you are aware of all the details
- Whether you possess the requisite paperwork
- Whether you recall that PPI was applied or added to your loan
Other Reasons PPI Was Mis-Sold
Aggressive Selling Tactics Employed By Banks
Banks undertook courses and sales conferences in order to ensure that their sales teams were fully appraised with the most aggressive selling tactics for PPI policies. Sales staff were asked to sell PPI policies to each and every consumer who contacted the bank, irrespective of whether they wanted it or were in fact eligible to claim from it.
The level of training provided to the sales staff basically meant that people had no choice but to take out a PPI policy. In some instances, if a consumer actually did object to the inclusion of a PPI policy into their loan, sales staff in banks were instructed to refer them to senior manager. Consumers were made to feel that the approval of their loan depended on whether or not they took out a PPI policy, which forced them to take out a policy they did not require.
In such a situation if you feel as a customer that it was your decision to take out a PPI policy and therefore have no valid grounds to make a claim, then you are mistaken. Banks knew how to force consumers into taking policies out and provided their sales staff with rigorous training to ensure that a policy was taken out whether or not you wanted one, meaning you still have grounds to claim back what you are entitled to.
Have You Purchased Your Policy Online?
More often than not these days an application for a loan is made online. Claiming for PPI can be bothersome if you have applied for a loan online, as the full terms of the loan are usually provided on the website. Therefore, the responsibility of understanding those terms before accepting the term policy falls on you as the customer.
However, there is one particular scenario wherein you might be able to successfully claim for PPI even if you had made the loan application online. If you were provided with pre-ticked boxes in which the option for PPI was already ticked and you had to opt out of it on your own, then it is possible that you bought the policy without being aware of it, which makes you eligible to apply for a refund.
Were You Mislead Over The Phone?
If you have purchased the policy over the phone, it is the responsibility of the salesperson to inform you about the terms of the policy and make sure that you understand what the policy entails and whether or not you will be eligible to claim from it in the future. If that has not happened, you may have a legitimate claim for refund. Such types of mis-selling occurred primarily because of the pressure exerted by banks on their sales staff to meet their PPI deadlines.
Our standing in the industry has meant that we’ve been able to broker a deal with the major banks and lenders, which means that we’re not required to submit anything more than a name, date of birth and an address; doing away with the complicated account numbers and reams of paperwork. Once we’ve sent this to your bank they can then start to process the information and correlate it with their database.
This agreement is unique in that it is available to only the best companies in the industry.
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