Billion Pound Scandal Breaks In Payment Protection Insurance Market

By David Sewell Stevens Personal Finance Correspondent Thursday, 12 June 2008

£1.4bn misselling scandal hits PPI market Payment Protection Insurance – facts and caveats: PPI's cover you for the repayment of credit card and loan debts in the event of certain eventualities Some stand-alone PPI policies cost less than £3 per £100 cover Shop around for the best cover at the keenest rate Sometimes cover is optional – check with the lender The loan may not be made more expensive if you don’t take out insurance Don’t allow yourself to be pressured or intimidated into any insurance deal Cancellation is now possible since the FSA intervened If in doubt, ask for a clear and unambiguous explanation of what you are actually committing to Related Money News See our other recent related news stories: Interest rates set to fall to 4% by 2009 Senior analysts are predicting that interest rates could fall as low as 4% by 2009, reports Amy Rich. Is the ruling on bank charges a Pyrrhic victory? While credit card and bank customers cheer at the recent ruling that points in favour of the consumer, increased charges elsewhere indicate this could be a Pyrrhic victory, argues Lorrie Kelly.

ANOTHER week, another scandal. There is yet another shock for the battered consumer and this time it affects 2 million of us who believed our credit card or loan Payment Protection Insurance (PPI) premiums were reasonable

Worse still is the bumpy-landing reality that some may not even be able to claim on the insurance at all.

Reports by the Competition Commission and Which? reveal some ugly truths and the poor old consumer may yet again have been taken for a bit of a ride.

Overcharged premiums and profits

What the reports reveal is that consumers who took out the payment insurance are probably being overcharged by more than £1.4bn a year – yes, £1.4bn.

That is staggering in anyone’s language and it points to a shadowy side of the business.

The profit margins made by lenders are not insignificant and across the industry it is estimated that they make £5bn a year from selling the controversial insurance.

Scour the market – you’re permitted to do so!

But one of the biggest problems for consumers is that lenders are not obliged to inform them that they have the option of buying cover elsewhere – and elsewhere often means that you can get the same cover for much less than the lender will charge you.

For instance, a policy bought from a lender could cost you as much as £28 for every £100 cover but a stand-alone policy costs less than £3 per £100 cover – that’s a mighty big difference to your pocket.

Let the buyer beware – and how to spot for the warning signs

If you have PPI cover you should ask yourself a few questions and if there is any uncertainty or you feel that you have been misled, you have the right to reclaim your premiums.

Typically, warning bells should ring if:

• You were told the insurance was compulsory and you felt pressured into taking the cover offered– lenders subscribing to the banking code accept that whilst PPI is necessary, you do not have to buy it from them
  
  
• You already had insurance cover and you informed the salesperson that you had the cover but they insisted on you taking out their cover
  
  
• The insurance term is too short – some single premium policies last for a maximum of five years, often much shorter than the term of the loan. The salesperson was obliged to point this out to you
  
  
• You have a joint loan and the insurance is in one of the names only – you could land up being chased for all the arrear payments whilst your fellow borrower doesn’t receive a red letter
  
  
• Your policy states that you cannot cancel it even if you pay off your loan or have a change of circumstances – intervention by the FSA fortunately has now made certain that cancelling all current and future policies is possible.

Is there an exit strategy?

What should you do if you think that you are eligible to reclaim your premiums for misrepresentation or if you believe that you have not been fairly treated when buying your PPI?

A number of websites allow you to download a template of a reclaim letter.

You will also be able to read some of the common reasons why you may be able to legitimately lodge a claim.

Optimistically and certainly not before time, the intervention by the Competition Commission will place a temporary price cap on policies whilst the market is made more competitive and consumer friendly.