Most of us have heard about PPI, and some of us have been lucky enough to get compensation. But what is PPI and how did it all go so wrong?
What is PPI?
PPI stands for payment protection insurance. Policies covered payments you missed because of redundancy, accident, illness, disability or death. PPI was sold alongside certain financial products including:
- Mortgages and other loans secured against your home
- Store and credit cards
- Unsecured loans – including personal, business and student loans
- Financing or hire purchase contracts – including car finance
- Other types of credit – including catalogue payments and home shopping.
When was PPI sold?
Most PPI policies were sold between 1990 and 2010, but some date as far back as the 1970s.
If you were sold PPI, there are a number of different ways you might have paid for it. One of the worst offenders was the ‘single premium’ payment. This was where the cost of PPI was added to the loan amount upfront. Borrowers were expected to pay for the PPI over the term of the loan along with the interest it clocked up.
Alternatively, there were monthly premiums, which was typically how credit card PPI was charged. In most cases, if you paid off your credit card balances in full, you wouldn’t be charged interest. If you didn’t pay the balance, then inevitably interest would be added.
So, what was the mis-selling scandal all about?
An investigation led by the Guardian newspaper in 2004 highlighted the huge sums that banks and other lenders were making compared to actual payouts. To get an idea of the scale, the Guardian revealed that Barclays collected £350 million in PPI premiums annually but paid out just £90 million.
After 2004, PPI began to unravel. Citizens Advice got involved and called out the scheme, labelling it a ‘protection racket’. What they found highlighted how much lenders were profiting from PPI charges. In some cases, they found the cost of PPI was as more than half the value of the original loan. Some of the examples they found included:
- Car financing with a loan amount of £4,300 but a PPI cost of £2,394 (56% of the loan value).
- A £25,000 secured loan where the cost of PPI was £12,127 (49% of the loan value).
- An unsecured personal loan of £11,000 where the cost of PPI was £5,133 (47% of the loan value).
But it wasn’t just that lenders didn’t pay out, it was also that many of them were actively mis-selling PPI. In some cases, customer information wasn’t collected properly, so PPI was sold to people who would never be able to claim (such as the unemployed). Even worse, lenders were pressuring people to sign up for PPI or even just adding the cost in without telling borrowers.
Citizens Advice also made the damning claim that PPI agreements were structured to minimise the chances of someone actually being able to claim.
What happened after the scandal broke?
Eventually, in 2006, the Financial Services Authority (now the Financial Conduct Authority) stepped in, making PPI a priority to resolve. The FSA also began fining lenders. Then, in 2009, the FSA banned single premium policies.
It wasn’t until around 2011 that borrowers started getting compensation. According to figures on the FCA website, borrowers received a total of £36 million in refunds and compensation in January 2011. In December 2019, over £273 million was paid out, showing the scale of the mis-selling. The FCA figures show that the total now paid out in compensation since 2011 stands at £38.3 billion.
Can I still claim for PPI?
The PPI complaints deadline was 29 August 2019. Unless there were exceptional circumstances at the time (for example if you were seriously ill), you won’t be able to make a claim now.
If you do want to make a claim, you’ll need to speak to the bank or lender, but be prepared to share evidence of why you couldn’t complain before the deadline. Alternatively, you can contact the Financial Ombudsman Service.
What happens if I don’t hear back about a claim?
Under the FCA rules, you should receive a decision about compensation within eight weeks of making your claim. However, thanks to a backlog, many claims are taking more than eight weeks to process. The FCA has advised that some claims may not be resolved until summer 2020. And because of the pandemic, we can assume that it may take even longer.
If you don’t hear back within a reasonable amount of time, the advice is to reach out to your bank, lender or claims management company.
If you’re not happy with the response you get – or you don’t hear back at all – you can raise a case with the Financial Ombudsman Service.
Tips and advice
To stay up to date, head to our money hub, where you’ll find a wealth of advice to keep your finances in tip top shape.
