Payment Protection Insurance is insurance intended to cover loan, finance or credit card payments in case you are made redundant or are too sick to work. Commonly known as ‘PPI’, it is sometimes referred as ‘payment cover’ or ‘Accident, sickness and unemployment cover’ (‘ASU’ abbreviated).
By itself, PPI isn’t a bad product. However, claims have been made because of various mis-selling practices by lenders, agents and brokers that have been rife throughout the financial services sector for about the past 15 years. The Financial Services Authority (FSA), issued a new handbook at the end of 2010, identifying the most typical mis-selling practices. The FSA described these practices as ‘failings’ and laid down guidelines for lenders to compensate those customers who were mis-sold PPI.
Banks initially challenged the legality of the measures by the FSA through a judicial review.
Some of the worst mis-selling practices related to ‘single premium PPI’, which had been banned by the FSA in May 2009. This was where the policy was effectively payable by a lump sum payment, being added onto the loan as a ‘one-off’ premium at inception.
Lenders and brokers often recommended single premium PPI without taking reasonable steps to find out whether this had been appropriate for the customer. In reality, single premium PPI was a particularly bad deal for the consumer for several reasons.
Firstly, PPI was frequently automatically contained in the overall loan quotation. Sometimes, this led to the situation where the consumer was completely unaware of the presence of the insurance policy. Customers should have been told about the policy from the outset as well as having the price of the policy told to them separately to the overall price of the loan.
Secondly, the item was poor value. Much cheaper PPI was usually available elsewhere, but customers were rarely informed about this. In fact, they had been regularly given the impression that this product was compulsory, whereas, in reality, it was optional.
Thirdly, customers would frequently not be entitled to a pro-rata refund in the event that the loan was repaid early. Put simply, the consumer may have paid for payment protection throughout the term at the outset. However, if they re-financed at some stage during the term, they might not have been entitled to any rebate of the PPI for the remaining period.
This type of PPI policy was clearly unsuitable for customers who were likely to re-finance at some point during the term, or who had been about to receive some dividend, like inheritance, enabling them to repay the balance. However, the absence of pro-rata refunds was seldom revealed to customers, effectively providing them with little choice in the matter. Brokers often simply failed to ask about the chances of the money being repaid early, or the need for flexibility generally.
Fourthly, lenders frequently did not disclose to the customer that single premium PPI would be added to the amount provided under the agreement, or that interest would become payable on the premium. This often made the loan much more expensive than the customer realised.
Finally, the length of the cover for single premium PPI was often shorter than the term of the loan itself. Customers were rarely advised about this fact, whereas they ought to have had the consequences of the mis-match told to them. For instance, if the loan was for five years, but the duration of cover was just three years, the customer would have been ineligible to claim if they were made redundant in the fourth or fifth year of the loan. Many customers were not aware of this. In essence, single premium PPI was probably the most glaring illustration of a poor product for the consumer in the PPI market. It was also the area in which mis-selling practices were most frequent and most grave. Therefore, it was for such reasons that the FSA banned the sale of single premium PPI alongside loans.
If the customer acquired a single premium PPI policy, it is very likely that you will have a strong claim for a refund. Because the whole premium was front-loaded, interest will have been charged on the entire PPI component of the loan from the start. This will make the interest part of the claim substantial.
You should bear in mind that if, but for the mis-selling by the lender, you would have decided on a different sort of PPI policy (such as, one payable by regular monthly instalments) you may only be eligible to reclaim the difference between your single premium PPI policy and the policy you would have otherwise bought. This may reduce the amount of your compensation.
If you believe that you may not have obtained any kind of PPI but for the mis-selling, then you will need to make this clear when generating your claim. In some instances, PPI of any type will have been entirely inappropriate for that particular customer. For example, you might have been unemployed or may have a pre-existing medical problem, causing you to be ineligible to claim on the policy.
Single premium PPI was the worst example of mis-selling in the PPI market. However, there are numerous other instances of mis-selling practices by lenders or brokers. You may be qualified for a full refund of the PPI premiums, plus interest.
For additional advice on mis-sold HSBC PPI claims or other financial institutions and banks visit PPI Claims Online
