PPI Claims, also known as PPI, has become the topic of heated debate in the financial world. What started out as a way to protect both lenders and banks turned into a huge scandal that rocked the financial world of the United Kingdom.
Back in the 1990s, payment protection insurance was a regular part of the borrowing money process.
Banks offered this insurance to borrowers when they took out loans, credit cards and mortgages. The idea behind this insurance was to protect the borrower, which, in effect, would also protect the lender. This insurance was meant to offer repay a borrower’s loan if he or she:
Of course, given the nature of finances and the unexpected, PPI seemed to be an excellent way to protect oneself when borrowing money.
After all, you never know when could fall into a financial bind and not be able to pay your debts. However, while this insurance started out as a good and wholesome idea, it soon turned into a financial outrage.
What went Wrong With PPI
The banking industry soon realized that payment protection insurance was actually quite profitable.
Several banks that offered this insurance stated that they were giving back a mere 15 percent of the money that they made off of the sale of these claims in coverage.
As it turns out, with such a low rate of return, payment protection insurance became a highly lucrative endeavor for banks.
In fact, the sale of PPI was even more beneficial for banks than the sale of homeowners or automobile insurance.
With such a huge profit margin being gained from the sale of PPI, banks started to take advantage of their borrowers and the sale of this insurance. Thus, the mis-sale of PPI insurance came to be.
Mis-Sold PPI – The Full Story
Since banks were making such huge profits off of the sale of payment protection insurance, they began to misinform and even not inform their clients.
Borrowers were mis-sold payment protection insurance if they were not:
Informed that they were taking out a policy alongside their mortgage, credit card or loan; or
The payment protection insurance policy that borrowers took out was not described to them in details, which lead these borrowers to purchase the insurance with proper knowledge of how it worked.
There were several stipulations that went along with payment protection insurance in order for a borrower to actually be covered by it. In order to be eligible for coverage of PPI, you need to be:
Between the ages of 18 and 65
Have a clean bill of health
Work in a secure position
Be employed by an established company
This means that if you fell outside the specified age ranges, you were ill and aware of your illness, you were self-employed or worked in a position that was not secure (seasonal or not full-time), you would not be covered by PPI.
However, despite these terms, countless people were not made aware of the stipulations and as such, they purchased the insurance. Given the nature of these guidelines for eligibility, those who were unaware of the terms of PPI claims were not able to actually file a claim and benefit from the insurance when they actually needed it.
In addition to not being made fully aware of the details of PPI, many people were simply not informed that they were purchasing this insurance. They signed paperwork associated with their loan, mortgage or credit card and, unbeknownst to them, payment protection insurance.
The mis-selling of payment protection insurance led to countless people paying for insurance coverage that they didn’t even know that they had, or that they thought would cover them, but they wouldn’t ever be able to benefit from.PPI Claims & How The Truth Unfolded
Between the 1998 and 2005, issues with payment protection insurance started to become noticed.
Borrowers started to notice that they were not being protected by the insurance that they purchased, or they became aware that they were making payments on a type of insurance that they never knew they purchased.
These issues started to gain attention and made headlines in the British papers The Daily Telegraph and the Sunday Telegraph.
As a result of this questionable activity, the FSA stepped in 2005. The FSA started to regulate the sale of payment protection insurance and started to review the sale of this insurance.
The FSA then made its first report against payment protection insurance. This report was made based on the grounds of poor selling and a complete lack of control in the market of the selling of this insurance.
The Final Note About PPI
As more and more attention began being paid to the mis-selling of payment protection insurance, more and more people became aware that they were, in fact, victims of this financial scandal.
PPI Claims started to be made at an unprecedented rate. As a means to settle those claims and make right the mis-selling of payment protection insurance, the banks that were part of the mis-selling ring started to pay back their customers.
British courts found that literally billions of people were eligible to file PPI claims and receive compensation for the PPI that they were mis-sold.
In fact, the debts owed by banks that were involved in this scandal are so large that many banks set aside funds to compensate their mis-lead customers.
Many banks have been reported to put aside £3.2 billion pounds, or more, to reimburse their borrowers for the PPI Claims they are expected to make.
While the payment protection insurance scandal has been making headlines for quite some time now, it will be quite some time before the claims against the mis-selling of this insurance are settled.
In 2013, banks continue to contact borrowers who may have been affected by mis-sold PPI and borrowers continue to analyze their paperwork and find that they were, in fact, victims of the scandal.
The PPI scandal is one that took the British banking system by storm and its effects will be felt for a very long time.
Learning About PPI Claims and the Scandal Behind Them
There have been a lot of PPI claims coming in from consumers who have been mis-sold the product during the time of applying for credit or a loan.
A lot of people are finding out that their mortgages, loans and credit cards have additional charges that they weren’t made aware of.
This is due to payment protection insurance that was added onto their loan without their knowing. Payment protection insurance, or PPI, is a product that is available to borrowers to help safeguard them and the lender from default payments.
Unfortunately, there’s been a lot of consumers who have been mis-sold this product, tacking it onto their debt without their consent.
Over the past couple of year, borrowers have been made aware about this fraudulent tactics and are filing PPI claims to recoup what they’ve lost.
How Lenders Bamboozled Borrowers with Mis-Sold PPIs
Mortgage companies, credit card companies and other lenders have been mis-selling payment protection insurance to consumers in order to get paid higher commissions.
It was also a way to protect their investment in a borrower who may end up defaulting due to a lay off at work or other financial emergency.
The way that PPI works is by paying for the minimum loan payments each month for a designated time (in most cases 12 months).
This gives the borrower time to regain their composure and start making payments on the debt. The lender gets to protect their asset and make a profit from it at the same time.
Millions of people in the United Kingdom were mis-sold payment protection insurance. In the summer of 2008, there were 20 million PPI policies in the UK alone. Around 7 million PPI policies were sold every year, quickly adding up the grand total.
This was good for the insurance industry, but majority of the policies that were written were done so fraudulently.
According to the PPI claims that started coming in, about 40% of the PPI policyholders were unaware that they had coverage.
The fraudulent acts of financial institutions that were mis-selling payment protection insurance had been overlooked for over a decade.
Even third-party brokers were getting away with murder. When the word started getting out, investigations of the PPI claims were being done.
About £400 million in policies were sold by High Street Bank alone, earning them a whopping 80% of that total in profits.
The reason for the high sales was because the banks encouraged the salesman to sell more policies and promised them high commissions for doing so.
Unfortunately, this ended up causing salesmen to conjure up different ways to get PPI included in loans – at any cost. This included telling borrowers that payment protection insurance was mandatory or was needed to help get approval for the funds.Guilty Lenders and How Much they Ripped Off Consumers
The amount of money that was ripped off from consumers is in the millions. Lenders like Egg, Capital One and HFC were all guilty of mis-selling payment protection insurance, resulting in a £1.1 million fine.
Alliance and Leicester is another guilty lender that was fined £7 million. As more and more PPI claims surface, the more details that are being released about which lenders are guilty and how much they have to pay back to consumers.
About 30% of the cases that were coming in were for PPI claims.
The amount of money that consumers were robbed of depends on the size of their loan and whether they completed the loan or still have debt left.
When payment protection insurance is obtained, the borrower will have to pay between 16 and 25 percent of the loan amount, as the premium.
This can either be paid on a monthly basis or in a lump sum upfront, using another loan. If this latter is chosen, the borrower will have to endure interest from the lump sum loan (between 13% and 56%) and the original loan that was taken out. When PPI claims are filed, the borrower is entitled for repayment of the loan and the interest that was imposed on them.
When it comes to credit card companies that have mis-sold payment protection insurance, the premium is based on the unpaid balances that rollover each month. So if the debtor doesn’t pay the full balance each month, interest is accrued for .78% and 1% of the past-due balance. This goes on top of the interest rate that the credit card company charges.
Filing PPI Claims to Recoup Money
In order to recoup all of the money that was lost in these fraudulent acts, consumers who have learned that they been duped into this coverage are filing PPI claims. The process can be done by contacting the bank and having them investigate the claim. This is done free of charge by the bank. It’s important to watch out for entities that are charging consumers for filing PPI claims. A lot of them are ripping people off with extremely high fees.
When a person files a PPI claim and has already paid off the loan, the bank will have to repay the borrower the amount of the payment protection insurance, along with statutory interest. If the loan has yet to be paid off in full, the bank is required to pay back what has already been paid for on the premium, along with interest. The bank will also have to cancel the policy, so that no more payments are made towards it.Preventing this in the Future
As of April 6, 2011, payment protection insurance was placed under an investigation order that was issued by the Competition Commission. This protects consumers by requiring them to be fully aware of PPI before it’s added to their loan. It states that lenders will have to provide borrowers with an accurate quote for payment protection insurance.
The policy can’t be added to the loan at the time the borrower enters into the credit agreement. This process will ensure that consumers are able to make informed decisions when shopping for credit and loans.