This is a 3-part article on Payment Protection Insurance (PPI), with the first instalment today. This post covers exactly what PPI is, how it applies to products, and how and why the PPI Refund industry has taken off recently. It also exposes the 13 most common reasons you may be due to a PPI refund.
Part 2 will be an interview with someone who took on Lloyds TSB on their own, and savvy tips, tricks and outcome.
Part 3 covers exactly how to go about reclaiming on your own, for free.
You can’t watch TV for longer than 15 minutes these days, or read a newspaper without hearing about how YOU are due a PPI (Payment Protection Insurance) Refund. “If you call one of our claim handling specialists right now we can secure you thousands!” It’s the same on the radio. I even get them spammed to my mobile phone by text message and email. I’ve even had them appear on my blog as spam comments (thankfully caught).
The problem is not so much that you may (or may not) be due a refund of your PPI premium and associated interest payments, but more about how the service is offered. The vast majority of the commercial refund companies thrusting their services at you by any means possible is that they will charge not only an upfront fee, but potentially a percentage of any claim you receive. They also have no particular vested interest in seeing a positive outcome for you as they in the main rely on the under-informed applying in droves, paying a ‘small fee’ and potentially receiving thousands in return.
A Brief History of PPI
What is PPI?
PPI stands for Payment Protection Insurance and it is an insurance policy specifically created to help a creditor keep up with a loan or credit card in cases where they find themselves unable to work due to accident, sickness or unemployment.
When Did PPI Appear?
Payment Protection Insurance has been around for decades in one form or another. It was only in 1998 however that the payment protection insurance sector was first uncovered as being widely mis-sold as potentially useless, yet adding significant additional revenue to banks and other institutions. Between 1998 and 2011, a number of court cases and appeals took place between both consumers and banks, and the Financial Services Authority and the Financial Ombudsmen Service.
Finally, 13 years after first coming to light on the 20th April 2011, the UK High Court ruled in favour of consumers, paving the way for potentially tens of billions of pounds of refunds to be claimed.
Is PPI A Bad Thing?
Payment Protection Insurance isn’t necessarily a bad product. Like all insurance it is designed to cover you in times of hardship, much like home insurance, car insurance and gadget insurance. It’s a peace of mind product. The issue surrounding the PPI Debate is the way the insurance was sold, and not necessarily about the insurance product itself or the credit facility it backed.
It isn’t a panacea though as, particularly in the case of credit cards, PPI will only satisfy your Minimum Payment and usually only for a 12-month period. If you are off sick or unemployed for longer than that, most policies will end their cover and you’ve merely delayed the catastrophe rather than averted it.
For a more solid approach – or in addition to – check out my SCRAM Plan approach and the importance of redundancy planning.
So Why The Refund Epidemic Now?
The whole PPI problem centres around mis-selling. In the worst cases, PPI was included in loans without the consumer even knowing about it. The worst example of which was the Single Premium Policy style of loan, where instead of paying monthly for the cover, or as an up-front fee separate to the loan product, the entire cost of the policy was added to the borrowing at the start of the term. This meant consumers were borrowing (sometimes much) more than contractually agreed and paying interest on the policy and the loan every month, costing hundreds or even thousands of pounds.
There has been low-level refund claims taking place for at least 10 years now, but it has massively taken off since the ruling in the High Court last year.
Was PPI Limited to Just Loans?
Unfortunately not. The mis-selling also applied equally to credit cards, where consumers were bullied into taking the insurance worded such that it appeared the application would not be approved if they did not (or doing so would increase their chance of acceptance), were signed up regardless or without being asked, or had the insurance started even though it was not appropriate or applicable to their individual circumstances.
Reasons for PPI Refunds
The first question on most people’s minds is “am I due a PPI refund?“. The answer to that question if you have had a loan or credit card taken out within the last 10 years or so is “maybe”. There is no hard and fast rule as to who is and who is not eligible to a refund without first knowing a little bit about the product, your circumstances at the time, and the circumstances surrounding the PPI sale.
It certainly isn’t as simple as the claims companies make out. I have put together a list of the 13 most popular reasons for initiating a claim and if your circumstances at the time of the insurance being taken out matches then you probably have a good cause to begin refund proceedings.
1. You were under 18, or over 65 at the time of the sale
PPI policies have age restrictions and depending on your particular product, you may find you have paid (or are paying) for insurance that is already invalid to you because you are outside of its age limits. Now the under 18 part shouldn’t affect more than a handful of people, but the ‘over 65′ part may catch out more folks. This is a classic as the sales agent would have your date of birth as a standard part of the loan application process.
2. You worked part time
PPI policies in the main don’t cover people who work less than 16 hours a week. The person selling you the insurance product would have known this, and should have had sufficient information within your application to be able to deduce this fact for themselves. If you were still sold payment protection insurance despite the sales person being aware (or negligently unaware) you didn’t work full time, you have a claim for mis-selling.
3. You were on a temporary contract
Temporary staff or contract workers (and even some agency staff under some policies) are ineligible for PPI cover. Much like the ‘part time’ scenario above, the person selling was either entirely aware the product was unsuitable for you but sold it anyway, or was negligent in their selling of it by deliberately not enquiring if it suited your circumstances.
4. You were self-employed
PPI policies with unemployment protection are usually not applicable to those who are self-employed. As with all of these you would need to read the policy terms to find out exactly what it covered, but on the whole being self-employed negated some or all of the cover.
5. You were a student
This ties in with (2) and (3) but may make students re-evaluate if they skipped over them. The chances are if you are a student then you are not working full time, or you are employed on a seasonal or temporary contract basis. Being a student in itself is not a reason, but you need to examine the circumstances surrounding you being a student to see if elements of your study would render your policy mis-sold.
6. You were already ill
Pre-existing conditions are likely to void any PPI policy if your illness should worsen, leading to a loss of income. In these cases, you should not have been offered the insurance in the first place. Think about how quickly travel insurance companies drop you should a pre-existing undisclosed medical condition crop up during a claim – it is much the same with PPI.
7. You were mis-informed about the extent of cover
Mental health issues such as stress or depression, and common muscular problems, such as backache, are often not covered by PPI policies. This should have been explained to you when you were offered the policy and potentially may also tie in with (6). If you already had a condition, or you were not informed of the exclusions, you may have a case for claim.
8. You were aware you may become unemployed
If you had reason to believe that you were facing an imminent loss of income, then you would have been ineligible for insurance covering this event and should not have been sold the PPI (or been applying for the credit in the first place – but that’s an entirely different discussion!). Most policies have conditions that would render your situation uncovered in such circumstances, and indeed have a period of time immediately after the cover begins that you are not able to claim in, further increasing the mis-selling aspect.
9. You were not told about the insurance
Or the cost of the insurance. Your lender should have clearly gone through the policy with you, checking you were eligible for cover, explaining with you what was covered and what was not, and how much it cost to purchase the cover. If you were not informed of the cost of the cover overall (see the ‘Single Premium Policy’ scam above), or you were unaware until some time later that you’d even been sold the cover, then you likely have reason to claim.
10. You already had similar insurance
Some standalone insurance policies provide income protection, or you may have been covered by a scheme from your employer to cover your liabilities for a set period in times of sickness or redundancy. The lender is obliged to look into whether you are already covered and if they did not, again you likely have reason to claim.
11. You were told it was mandatory
This, despite being number 11 in my list, is my biggest pet-peeve with this whole sorry saga. PPI is an optional purchase of an insurance product, and does not affect your eligibility for a loan or the interest rates payable. Lending institutions were not supposed to offer a discount if you take out an insurance policy, or make it sound like you are more likely to be accepted if you do, or less likely if you do not.
12. You were not told other options existed
Many of the PPI cover options provided by credit facilities are more expensive than if purchased as a standalone product from elsewhere. You are not obliged to take out PPI at all (as 11), but if you choose to do so, you are not obliged to take it out from the same company providing your loan or credit card. If you were not told that you have the opportunity to shop around for your PPI, you once again may have been mis-sold.
13. The PPI box was already ticked
Prior to July 2007, many online loan and credit card application forms had a tick-box to indicate whether you wanted to purchase Payment Protection Insurance or not. In a large number of cases, the page loaded with the box pre-ticked, so that customers had to opt out of buying the insurance, rather than opting in. This was changed after concerns raised by the Financial Services Authority and can indicate you were mis-sold as the PPI may not have been adequately explained to you, or you did not understand the relevance of it.
This list isn’t exhaustive, but does give a good start to discovering if you may be eligible for a refund of your PPI.
As you can see the PPI arena is a minefield, but it should be fairly clear at this point whether you have grounds to claim a refund. There is no magic or voodoo involved in working out whether you are due a claim or not, and there is certainly no need to either stump up your hard-earned cash to pay a company to claim for you, or indeed lose some of your compensation to them on a ‘no win, no fee’ basis. It’s something you can do yourself sometimes completely free, or minimally at the cost of a couple of postage stamps.
Be sure to check back tomorrow when I will be interviewing Bryony about her claim journey against Lloyds TSB and she will share her hints and tips with you for your own journey that I will explain in detail in Part 3 on Thursday!