The real result of PPI mis-selling
PPI has long been recognised as an insurance that was widely mis-sold. But the true result of that mis-selling has too often been ignored.
Payment Protection Insurance (PPI) was widely mis-sold and there’s no arguing with making the organisations involved repay the money to those who were affected.
However, the real effect of mis-selling PPI has often been lost in the last few months over the clamour to reclaim.
PPI as a product was sold to protect ‘normal’ debt from becoming ‘problem debt’, and sold like this, we’d say it sounded like a good product - an insurance against having to seek debt advice from a charitable organisation like us. If you had PPI, debt was never going to be a problem. You were protected.
Only, it transpires now, you weren’t protected at all.
The real effect of mis-selling
We’ve come across a few clients of ours who are now suffering from the long-term effects of being mis-sold this product. The following is based on a real story, and shows the depth of the problem…
The client took out a loan in 2006 and asked for PPI. The client was self-employed but was never told that the PPI policy didn’t cover self-employment.
A few months passed and then the client suffered an income shock. Income shocks are usually issues such as redundancy, relationship breakdown or a reduction in hours at work, but in this case the client lost a major contract.
At this time the client did a budget, saw there was a shortfall and knew that he could not afford the contractual payments towards the loan. However the client knew he had PPI and so they contacted the lender to make a claim.
The claim doesn’t cover certain circumstances
It was at this point that the client was told that the insurance didn’t actually cover self-employment. The client argued that the PPI was sold to him on condition that it covered this.
The initial claim was refused. The client didn’t take the argument any further believing (wrongly) that he didn’t have a case.
The client put together a budget and made sure that he maintained all priority payments until he could afford to pay the loan again. He offered the creditor a token payment in the meantime and the client was advised to swap bank accounts in case the creditor in question decided to use the right of offset to get access to any funds directly from his bank account.
Interest and charges
The client continued to hope for a change in circumstances while paying as much as he could afford towards the loan. The loan continued to accrue interest and charges as per the terms and conditions of the credit agreement.
The client had a default registered on his credit file by the creditor. This was listed on the file for six years and affected the availability of any other credit.
Over the following few years, due to interest and charges being added, the original £10,000 loan grew to £30,000 repayable.
The debt was then sold onto a debt collection agency that pursued it.
Debt collection agency
The client moved house in 2010 and informed the creditor of this. However, for one reason or another there was a mix up and the client didn’t hear from the debt collection company for a while.
The debt collection company decided to take legal action and applied for a county court judgment (CCJ). As the client didn’t get the letter, the courts granted a CCJ which the client instantly defaulted on.
Bailiff action was then sanctioned by the court and other enforcement methods were taken. The client remained unaware of all of this until he tried to get in touch with the creditor.
The situation now
From a £10,000 loan with PPI to a £30,000 debt, a county court judgement (CCJ) and bailiff action. The creditor could have even issued a statutory demand and petitioned for the client’s bankruptcy. All this on a loan that the client paid for protection on.
The debt will take a long time to clear, the courts will have to be dealt with and the CCJ will be listed on the client’s credit file for six years. These are the long term repercussions of mis-sold PPI. The client is now seeking free and impartial debt advice from us and we’ll advise him on the best way forward.
Problem debt is sometimes impossible to insure against, but we shouldn’t forget the real scandal behind the mis-selling of PPI.
More on debt:
When money saving doesn't actually save you money
Who has more debt: men or women?
Baby boomers are going bust
Eight reasons you'll never be truly debt free
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Comments
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The result of PPI means that I get about 100000 phone calls per week to help me claim??? It must be very easy to claim judging from the simpletons that phone me.
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Because he had a risk of a serious income/budget shortfall, he should have paid off the loan through credit card cash transfers. Once his income was less than his budget inclusive of card payments he could have then negotiated voluntary payment plans with the card companies for as little as £1 per month per card company and had an agreement by them to stop interest and charges while on payment plans. Unless because of self-employment he was unable to get credit cards/ suitable credit card limits?
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RBS played the PPI game with a freind of mine who was 60 when she was made redundant. She claimed against her PPI insurer and was told that as the retirement age was normally 60 for women that they would not consider her claim. Fortunately she had kept diary notes and dates. I wrote to RBS on her behalf and requested a response within 7 days. No response from RBS. I told my freind to change her bank account which she did with instructions to pay her direct debits with the exception of the RBS monthly payment which was still in force until she was 65. 6 weeks later she had a letter from RBS stating that she was in arrears by 1 month in her payments and they noticed that her account had been closed. I wrote to RBS and asked for the details of the original contract of the contract as their appeared to be a discrepancy in the terms. Once the letter came with a copy contract I sent copies to the ombudman with a claim for miss selling PPI. 4 months later The Ombudsman found in favour of my friend and instructed RBS to pay the back the insurance premium plus interest which they did 3 weeks later. Don't be put off by the banks, the High Court judgement last year had them banged to rights. The banks senior management should have been prosecuted for fraud!
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25 September 2012