As easy as PPI

It is not often the banks seem desperate to give us money. But they have at least £6 billion and possibly as much as £9 billion to give back to customers who were mis-sold insurance when they took out a loan or credit card. And, since we mentioned this in Money News last month, at least one bank is not being too fussy about who it gives the money to and some have been given longer to cope with the flood of claims.

Payment Protection Insurance (PPI) was supposed to protect the borrower’s repayments if they lost their job or fell ill. But it often failed to do so and, even if it did, was three or four times as expensive as it should have been. In 2008 the Competition Commission estimated that banks were making excess profits of £1.4 billion a year on selling – and we now know mainly mis-selling – PPI. Last August the Financial Services Authority told the banks they had to go back and assess how they sold the policies in the past and pay compensation to those mis-sold. Even though they did not have to re-assess every case – just the way PPI was sold – the banks challenged that instruction. But in April the courts ruled they had to obey. So now the floodgates are open to mis-selling claims by anyone who was sold this insurance.

Anticipating a huge volume of claims, four banks – Barclays, Lloyds (including subsidiaries such as Halifax and Bank of Scotland), HSBC, and RBS (including NatWest, Coutts and Ulster Bank) – have now been given longer than the usual eight weeks to deal with them. This extension also applies to PPI sold with credit cards they issued. Claims made already but put on hold while the court case was pending have to be decided by the end of August. Some customers will have waited a year for their case to be resolved. Claims made after the court decision on 20 April must be decided within 16 weeks of being made. That period will be reduced to 12 weeks for claims made from 1 September and is expected to revert to the normal eight weeks for claims made in 2012. Banks are hiring warehouses and taking on staff – or protecting them from redundancy – to try to meet these targets.

This extended timetable for the biggest offenders is partly to relieve the Financial Ombudsman Service. More than half the claims it received in 2010/11 were about PPI, a total of 104,597 which was more than double the number received in 2009/10. Between April and the middle of June, when the extended deadlines were announced, more than 40,000 unhappy customers had referred their case to the Ombudsman after their complaint had been rejected or delayed beyond the normal eight week deadline. The new timetable will help pre-empt such claims.

Barclays, the second biggest mis-seller of this product, has now said it will pay anyone who put in a complaint about mis-selling PPI before the court judgement on 20 April. In other words, the bank will assume they were all mis-sold. They will get their PPI premiums back plus interest at 8%. Other banks are not following Barclays’ lead Barclays will look individually at all claims made after 20 April. But all of them are likely to err on the side of the customer to avoid the charge of rejecting valid claims and keeping references to the Ombudsman to a minimum. Before the recent court action delayed things it was finding for the customer in nearly nine out of ten cases.

Anyone who has put in a PPI mis-selling claim should now wait until the deadlines have been reached before complaining further to the Ombudsman. Everyone else who has taken out a loan or a credit card in the last few years should consider if they were sold PPI with it and if so should consider if they have a claim for compensation.

How to claim
Not all PPI was mis-sold – but most of it was there should be no argument in many cases. Lenders used to put pressure on borrowers to take out PPI. Sometimes it was added on without permission. In other cases borrowers were told they had to buy PPI to get the loan. Often the pressure was more subtle but if you were told or believed that PPI was compulsory then that will be a mis-sale.

Some lenders insisted that the PPI was paid upfront in a single premium and that was added to the cost to the loan. That practice is now outlawed and if that happened to you it will be a mis-sale. 

Most policies excluded anyone over a set age – usually 60 or 65. But many people who were already older than that were sold PPI – they could never have claimed and the PPI was always mis-sold.

Many people were led to believe that if they fell ill or lost their job the loan would be paid off. It never was. The insurance simply covered no more than the monthly interest payments and only those for a year or sometimes less. If you were led to believe that the PPI covered more than it did then it was mis-sold to you.

Sales people often failed to mention exclusions which would have prevented a successful claim. Losing your job was not enough to claim – you had to be blameless. That generally meant losing your job through compulsory redundancy. If you were dismissed for any other reason – even if you considered the dismissal was not your fault – the insurance would not pay up. Normally you had to have been in your job for a minimum period before you could claim. And if you had any information that led you to believe redundancy was in the offing the insurance would be invalid. Self-employed people were normally not covered by PPI at all, though they were often sold it by commission driven sales staff. All these could be mis-sales.

The medical conditions which were covered – and excluded – were often not explained clearly. If you had any previous medical condition which you did not declare then that would normally lead to a claim being rejected – even if you could not work due to another condition altogether. Your illness would have to be such that you could not work at all and you would be expected to try to find work. Couples could also find that if one of them could work the insurance would not pay up.

There are far fewer complaints about PPI sold with a mortgage. But you may still have a claim so consider carefully how it was sold to you.

You make the complaint in the first instance to your lender – that may be a bank or it may be a smaller loan company. Find out from your paperwork who that is. If the complain it is rejected – or as soon as the deadline for dealing with it has passed – you can take it to the Financial Ombudsman Service. If your lender cannot be found or has gone out of business then you can still claim – go in the first instance to the Ombudsman and any compensation should be paid by the Financial Services Compensation Scheme.

There is no limit to how far claims can go back, though they are more straightforward if the PPI was sold in January 2005 or later. If you have complained in the past and been turned down you should complain again and – if rejected – go to the Ombudsman.

More information
There are good guides and sample letters at www.moneysavingexpert.com/ppi and www.which.co.uk/ppi
If your complaint is turned down or delayed visit www.financial-ombudsman.org.uk put PPI in the search box.

e-mail Paul Lewis on paul@paullewis.co.uk