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.

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