Payment Protection Insurance (PPI) is a product that has been offered to consumers to protect them if they are unable to make a payment on a loan or debt in the event of illness or unemployment. Real life can be scary and unpredictable so the idea behind it is comforting. This product has been lumped in with loans, mortgages and credit cards for quite some time.
The banking industry started to push this product after realizing that it was highly profitable. Starting in 1998, complaints started to arise questioning the legitimacy of the product. In 2004/2005 it all came to a head when banks were finally forced to face charges and claims from consumers demanding their money back for mis sold policies. The big banks in the UK, including Barclays, were all forced to shell out large sums of money towards this scandal.
Problems with PPI
On paper, PPI appears to be a great product to have. Who wouldn’t want to be covered in the even they were unable to pay their debts? However, after further research and time, the product isn’t what it appears. Trends show there are clearly some major issues.
The first issue is the cost. By adding PPI to a loan or debt you could potentially be adding 20% to the cost. That is a substantial amount. To put it simply, if you were spending $100 on something, and then it changed to $120, that is a large difference.
The banking industry also structured the policies in a way that caused them to actually be ineffective. If you were genuinely ill or lost your job and were unable to pay and wanted to actual utilize the insurance, chances are that there were limits on your policy that would not allow you to do so. Like a lot of contracts, these loopholes would cause a lot of heartache for policy holders who simply wanted to file a claim and utilize the policy for its true purpose.
The banking industry also made the process to file claims very complicated and timely. This causes PPI to be very inefficient. If you can’t make a payment you need a quick turnaround. The procedures in place made it very difficult to do it in a timely manner. There is no time for 6 weeks and sometimes months turnaround time.
Finally, and most importantly, PPI was being mis sold. This means it was either a.) sold without the customers knowledge b.) sold as if it were mandatory or necessary or c.) sold to the wrong type of individual who wouldn’t even be able to make a claim (an example of this would be a self-employed individual).
FILING A PPI CLAIM
If you have PPI and believe you are a victim of this scandal, it is best that you file a claim to retrieve your money. There are firms out there, such as Canary Claims, which can help you manage the process. The process is different for each person because there are many factors involved. It depends what paperwork you have to provide, what your policy was, how long you had the insurance, if it is currently active, how it was mis sold, etc. Most banks have systems in place to make the claims process go smoothly. However, it is possible that claims are rejected or not paid in full.
EFFECTS OF PPI
In the beginning, the sale of PPI was running rampant for banks in the UK. The product yielded large profits for them. The monthly premiums were essentially revenue for the banks and the employees gained commission on every policy they sold. Some employees were also given bonuses for the number of policies they sold.
Also, once the banks figured out that the percentage of consumers actually filing claims was so low, they knew they had an all-star product on their hands. What could go wrong?
Once all of the banks caught on to this profitable scheme, it took a turn for the worse. Media publications started to out the product causing consumers to realize what was happening. They realized they were mis sold the product! The issues discussed above (added cost, ineffectiveness, inefficiency, mis selling) were brought to light and now they were forced to face their wrong doings. Consumers realized how much money they lost on these products and were demanding it back.
Not only is PPI effecting the consumers, it is also effecting the banks. This scandal has been said to potentially be one of the costliest in the industry. One of the biggest banks in the UK taking the brunt of the claims is Barclays. Barclays PPI Claim totals have been in the billions. It is obviously taking a heavy toll on the industry, but they are required to take responsibility. After dealing with the scandal for over a decade, a deadline for filing claims is finally being established. This is beneficial to the banks because it finally draws a line for when people can file. The bad news is that now there is an influx of claims because people want to beat the deadline.
Because of this, Barclays PPI claims have risen 16% in a year. The influx has caused Barclays to add more cash to their PPI provision bringing the total set aside to £8.4 billion. Barclays, and many of the other big banks, shareholders are seeing the effects of handling this scandal. When the financials are presented,
Barclays also has a large number of employees working on claims. This is causing the banks to use their resources to focus on this scandal. When these resources could be used elsewhere making profits. All of this is bad news for the industry. The greed that caused the selling of the product initially came back to haunt them.
Overall the banking industry has taken a hit for this whole situation that has lasted over a decade. Hopefully with a deadline looming everyone involved, both consumers and the banking industry, will be pleased with the outcome.