The PPI Mis-selling Scandal
Payment protection insurance (PPI) is sold to borrowers with the promise of peace of mind and reassurance that credit or mortgage payments will be covered if their personal and financial circumstances change for the worse. However, many clients find that they cannot make a successful claim on their policy because of exclusion clauses and administrative barriers to making a claim. Premiums for PPI policies can add 20 per cent or more to the total amount to be repaid on a loan agreement, thus increasing people's indebtedness rather than preventing it.
PPI is commonly sold linked to credit. The PPI policy will protect the borrower against the risk that they will be unable to make repayments under the loan for reasons such as unemployment or incapacity to work through illness or disability. Selling PPI is big business, with an estimated 20 million policies in force and annual gross premiums in excess of £5 billion.
CITIZENS ADVICE BUREAU enquiries about PPI include a disproportionately high number of complaints about claims being turned down. A survey of CITIZENS ADVICE BUREAU debt clients in 2001 found that 85 per cent of those that had claimed on PPI had been unsuccessful. In contrast industry figures show around 85 per cent of claims are successful!
PPI does not come cheap. PPI premiums paid by clients represent anything from 13 per cent to a staggering 56 per cent of the amount loaned. It is common for PPI on loan agreements to be paid for by a one off premium included in the loan itself and for interest to be charged on PPI premiums.
This is why Kamran Mirshahi, a former victim of the scam, decided to do something about it. He sought the advice of a legal team in order to establish ways to help others avoid falling into the same trap. In 2008 he launched Canary Claims with the objective to help victims get their money back.
“Claiming for a refund is something any victim should do without hesitation,” says Mr Mirshahi, “Generally speaking you can claim a full refund of the cost of the insurance plus interest - in most cases a statuary interest of 8% is also awarded”.
PPI insurance is sold in such a way that victims feel almost obliged to buy the scheme from unscrupulous insurance sales people. Every time a customer is successful with a loan application, the sales person at the other end of the phone, always very obliging, is quick in offering a PPI. The customer is so grateful for the loan, that he can’t refuse this little extra.
“The good news is, continues Mr Mirshahi, that the Competition Commission is now set to ban the sale of PPI at the point of sale. Meantime, consumers should remain vigilant every time sales people, bank staff, are keen to explain the ‘benefits’ of a new product - you can rest assured that there is a cost involved somewhere”.
Concerns over the miss-selling of PPI have been highlighted by the recent fines handed out to 22 firms by the FSA, the largest area of concern being PPI sold alongside unsecured personal loans, with fines of £8,925,000 being handed out.