Single premium PPI
PPI is insurance designed to cover loan, finance or credit card payments for situations where you are made redundant or are too sick to go to work. Commonly referred to as ‘PPI’, it is also referred as ‘payment cover’ or ‘Accident, sickness and unemployment cover’ (‘ASU’ abbreviated).
In itself, PPI isn’t a poor product. However, claims have been made due to various mis-selling practices by lenders, agents and brokers that have long been rife throughout the financial services sector for about the last 15 years. The Financial Services Authority, or ‘FSA’, issued a new handbook at the end of 2010, identifying the most common 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 FSA’s measures by way of a judicial revi
Some of the worst mis-selling practices were associated with ‘single premium PPI’, which was banned by the FSA in May 2009. This was when the policy was effectively payable by a lump sum payment, being added to the financial loan as a ‘one-off’ premium at inception.
Lenders and brokers often recommended single premium PPI without taking reasonable steps to ascertain 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, it was frequently automatically included in the overall loan quotation. Sometimes, this meant that the consumer was completely in the dark over the existence of the insurance policy. Customers should have been informed about the policy from the outset as well as having the cost of the policy told to them separately to the overall cost of the loan.
Secondly, the item was poor value. Less expensive PPI was usually available elsewhere, but customers were rarely informed about this. Actually, they had been regularly given the impression that the product was compulsory, whereas, in fact, it had been optional.
Thirdly, customers would frequently not be entitled to a pro-rata refund in cases where the loan was repaid early. Put simply, the customer may have purchased payment protection for the duration of the term at the start. However, if they re-financed at some stage throughout the term, they would not have been allowed any rebate of the PPI for the remaining period.
This sort of PPI policy was clearly unsuitable for customers who were planning to re-finance during the term, or who were about to receive some dividend, such as inheritance, enabling them to repay the balance. However, the absence of pro-rata refunds was seldom revealed to customers, effectively giving them little choice in the matter. Brokers often simply failed to make enquiries as to the chances of the loan being repaid early, or the need for flexibility generally.
Fourthly, lenders frequently failed to disclose to the customer that single premium PPI would be added to the total amount provided within the agreement, or that interest would be payable on the premium. This often made the loan much more expensive than the customer realised.
Finally, the term of the cover for single premium PPI was often shorter compared to term of the loan itself. Customers were rarely advised of this fact, whereas they ought to have been given the consequences of this mis-match explained to them. For instance, in the event the loan was for five years, however the period of cover was just three years, the consumer 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. Essentially, single premium PPI was probably the most glaring illustration of a poor product for the consumer in the PPI market. It is also the area in which mis-selling practices were most common and most grave. It was for these motives that the FSA banned the sale of single premium PPI alongside loans.
If the customer acquired a single premium PPI policy, it is likely they will have a powerful claim for a refund. Because the whole premium was front-loaded, interest would have been charged on the entire PPI element of the loan from the start. This makes the interest element of your claim substantial.
You need to bear in mind that if, were it not for the mis-selling by the lender, you would probably have taken a different type of PPI policy (for example, one payable by regular monthly instalments) you will only be entitled to reclaim the difference between your single premium PPI policy and the policy that you would have otherwise bought. This might limit the amount of your compensation.
If you believe that you would not have taken out any kind of PPI were it not for the mis-selling, then you will need to help make this clear when making your claim. In some instances, PPI of any sort would have been entirely inappropriate for that particular customer. For instance, you might have been unemployed or had a pre-existing medical problem, making you 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 might be entitled to the full refund of the PPI premiums, plus interest.
For more guidance on mis-sold Cheltenham and Gloucester PPI claims or any other financial institutions and banks visit PPI Claims Online
