Payment Protection Insurance, also known as PPI, is a type of insurance product that can be used by consumers to protect their loans from falling into default at the event of a financial crisis.
As of late, there’s been awareness raised about mortgage companies and other lending institutions mis-selling PPI to consumers without them knowing.
For years, consumers were paying on mortgages or other credit loans that were hiked up with payment protection insurance, without their knowledge.
They were never asked to apply for the insurance policy, it was just added on without the buyer’s consent. Because of this, victims are filing PPI claims to regain the money that they’ve spent on policies that they never knew that they were paying for.
Why Did Banks Mis-Sell PPI?
A lot of banks, mortgage companies and other lenders give out loans with the hope of getting repaid the debt plus interest. Of course, this doesn’t always happen, which is why payment protection insurance was created.
With PPI, the creditor is able to partly secure the loans they write, since they are created to cover a year’s worth of payments if the debtor ends up losing their job or suffering another financial problem.
When this happens, the creditor is paid the benefits from the insurance company. The policy usually covers minimum loan payments over a specific period of time (usually 12 months). Once the period ends, the borrower will have to find a way to make the rest of the payments. In most cases, borrowers are able to regain employment before the year is up.
When lenders were mis-selling PPI coverage, they were thinking of their own best interest instead of the borrowers. To date, over 7 million policies are written each year at the time of the credit application processing.
In May of 2008, there were 20 million PPI policies that existed in the United Kingdom. Then every year thereafter, there were seven million PPI policies sold to borrowers. Out of those numbers, 40% of the consumers had no idea that they had a PPI policy.
For over a decade, PPI mis-selling had been mistreated on an industrial scale. This was being done by banks, providers and third-party brokers.
One bank alone, sold £400 million and out of that, it made an 80% profit. This was made possible by offering large commissions to the lending officers that dealt with borrowers firsthand. Writing PPI coverage into loans would offer larger returns than the loan’s interest by itself. The salespeople misled consumers by only telling them that their loans were protected, without revealing how, why and for how much.
When asked about the policy, the salesperson would tell the borrower that having the PPI would increase their chances of getting approved for the loan or that it was a requirement.
Who was responsible for mis sold ppi?
There were a variety of lenders over the last decade that have mis-sold PPI to borrowers. This includes Alliance and Leicester (fined £7 million), along with Capital One, Egg and HFC, who were all fined £1.1 million.
The claims for mis-sold PPI rose steadily during the 2006-2007 period. The amount of claims regarding PPI was around 30% of bank-related cases.
Stopping future PPI Claims
In order to help prevent mis-selling of PPI during loan transactions, the FSA released an investigation order (April of 2011). This order allows consumers to browse for loan products and learn fully about them before committing to a purchase.
In order for this to work, the order requires that correct information be given to loan applicants regarding PPI and giving the consumer an adequate quote for obtaining the coverage.
An annual review is also an obligation on behalf of the lender and salesman are not allowed to include PPI in a credit agreement at the time the borrower is entering into it. The rules of this order came into effect in October of 2011.
How Much Borrowers were Ripped Off & how to make a PPI Claim
If the borrowers that were scammed into getting PPI never obtained it, they could have ended up saving thousands of pounds. The rate of the insurance depends on the lender and time that it was obtained.
In most cases, the cost of the PPI was between 16 and 25 percent of the debt amount. The PPI payments are either monthly or upfront. With the upfront payment, also known as a Single Premium Policy, the money borrowed to cover the cost accrues the same APR as the actual loan.
For credit cards, PPI is calculated differently. Since the borrower doesn’t always use the full balance each month, PPI payments are based on a consumer not paying the card balance in full each month, which can be between .78% and 1% for every £100.
With the credit card interest added to this, this can quickly become too expensive for the borrower. Those who obtained lump sum loans, PPI Claims with no paperwork have to be paid for outright, which can cost between 13% and 56% of the debt amount.
Consumers Filing PPI Claims
Although payment protection insurance can be a good product to have, a lot of consumers weren’t made aware of it and want out, plus their money back.
Credit card companies, loan providers and mortgage lenders had been misleading their clients into buying the product and now borrowers have realized this and are filing PPI claims.
Some people are opening ppi claims cases on their own or using the assistance of a claims management company, who charge a fee to investigate and carry out the claim.
Consumers are able to do the investigation on their own by having to reclaim bank charges that were issued by the bank.
There are claims management companies on the prowl, taking advantage of the victims of who’d like to file PPI claims.
The funds that the borrower is entitled to include the money spent plus the interest charges. In the event that the loan has already been paid off, the lender will be required to pay back what was paid plus statutory interest. Loans that have yet to be repaid are revised to discontinue future costs for the PBA Claims.