The great payment protection insurance rip-off rumbles on. Isn't it time you got your money back?
This morning, the Competition Commission released its latest thinking into the massive rip-off that is payment protection insurance (PPI). For more information on the PPI scandal, read Avoid This Enormous Rip-Off.
Payment protection insurance is a subject that is particularly close to my heart, because I worked in this industry for more than a decade before becoming a financial writer. Having been employed by several leading firms at the heart of the PPI industry, I've now become its greatest critic. For five years, I've pursued a relentless campaign against payment protection insurance. Indeed, I've criticised it more than six hundred times since 2003!
Sadly, once again, I'm disappointed with the Competition Commission's progress. So far, it has failed to reach any firm conclusions during its ongoing investigation into PPI. However, as an ex-insider, I'd argue that the primary faults of PPI are easy to reveal:
- PPI is massively overpriced, with claims accounting for perhaps 10% to 20% of premiums collected. In other words, profit margins on PPI frequently exceed 80% and even 90%!
- The industry is deeply anti-competitive, with providers of credit cards, personal loans and mortgages having near-exclusive access to borrowers who can be sold high-priced PPI.
- It is widely mis-sold, with `one size fits all' policies sold to borrowers who stand no chance of ever making successful claims.
- Policies are riddled with loopholes, exclusions and `get out' clauses, enabling a large proportion of claims to be rejected without payment.
For the record, the Competition Commission aims to release its provisional findings into PPI in May 2008. Hence, I remain hopeful that it will act to improve consumer protection in this sector.
In the meantime, City watchdog the Financial Services Authority (FSA) is taking regulatory action against PPI providers. As part of its enforcement action, the FSA has fined ten PPI firms a total of £1.8 million. However, I see this as the tip of the iceberg, and remain hopeful that the FSA will levy multi-million-pound fines on the big PPI players!
So, if you've taken out a credit or store card, car finance or personal loan, mortgage or secured loan, then you may have one or more PPI policies. However, it's entirely possible that you're unaware you have PPI, because many lenders `bundle' it into the cost of a loan. Thus, you should check with your lender(s) to see if you're paying monthly premiums (or have paid a one-off sum) for this over-priced rubbish.
If a lender has mis-sold PPI to you, then you could be in line for a premium refund worth thousands of pounds. Indeed, by cancelling an unwanted, mis-sold PPI policy, you could receive a lump sum today and reduce the cost of your credit in future. However, if you've received payments from a PPI policy following an accident, sickness or unemployment claim, then your chances of getting a refund of past premiums are nil. Nevertheless, you could cancel your policy now and start saving money from today.
In my experience, the most common mis-selling problems are:
1. Being sold PPI without even realising that you have bought it. By quoting loan repayments inclusive of PPI, lenders can sneakily perform a `stealth sale' of PPI. This is because adding PPI to a loan doesn't change its APR (interest rate), so the premium `flies below the radar'. Thus, if you have PPI without even realising it, then you have a cast-iron case for a mis-selling refund.
2. If your lender forced you to take out PPI as a condition of being granted credit. PPI is supposed to be optional protection, so the regulator frowns on this type of `conditional selling'.
3. You weren't given a copy of the insurance policy's terms and conditions. Without these, you cannot possibly know what is and isn't covered and, therefore, whether the cover was right for you. The FSA has fined a number of firms which failed to ensure that all customers received the necessary policy documents.
4. If you were self-employed, out of work, retired or over 65 when you were sold your PPI, then it may have been entirely unsuitable for you. If you can demonstrate that a claim from you was unlikely to succeed in most circumstances, then you've got your PPI provider on the back foot.
5. If you have a `pre-existing condition' -- an ongoing medical problem -- which would make it very difficult or impossible for you to make a sickness claim. If your PPI provider failed to explain that such conditions aren't covered, then it's slipped up.
As for complaining about your PPI, your first step should be to call, email or write to the lender who sold it to you. Explain exactly why you think the cover is inappropriate, how it was mis-sold, and how it fails to meet your needs and expectations. Ask for your policy to be cancelled immediately -- unless you are already receiving payments under an ongoing claim, or expect to make a successful claim soon.
If you believe that your PPI policy was unsuitable or useless from the start, then insist that it is voided ab initio (`from the start'). Demand a full refund of all premiums paid, plus interest. If the lender or insurer refuses, then ask for a `deadlock' letter so that you can escalate your complaint to the Financial Ombudsman Service (FOS).
If you still don't have any joy, then contact the FOS for a ruling on your complaint. The FOS has seen a steep increase in PPI mis-selling complaints. The good news is that two in three rulings (67%) go in favour of policyholders. It won't cost you a penny to complain to the FOS (even if you lose), but each FOS referral costs financial firms hundreds of pounds. Thus, if you have a half-decent case, many PPI providers will make you an offer before your letter arrives at the FOS.
In the worst-case scenario, you may need to use a lawyer or claims-management company to help win compensation via the courts. However, going down this route could cost a fortune, so tread carefully.
Lastly, be prepared for a fight. PPI is so hugely profitable that lenders will do everything in their power to convince you not to cancel your cover. However, if you stick to your guns, then expect a successful outcome in the war against this enormous rip-off!
More: Reclaim Your Rip-Off Premiums! | Buy low-cost PPI from independent, award-winning Fool partner British Insurance