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An Overview of Payment Protection Insurance (PPI)

If you've followed the news in the recently, you've probably heard mention of Payment Protection Insurance, or PPI.   While the product isn't exclusive to the UK, the level of controversy regarding unethical selling practices, as well as issues with the current ppi claims process, has made it a huge focal point, with billions of UK pounds hanging in the balance.

With that in mind, we've collected a high level overview of what it is, as well as a bit of ppi claims advice.

What is PPI?

Payment protection insurance (often called "PPI" or “loan protection”) is an insurace product that covers your debt or loan repayments if certain events occur.  Common triggers that would kick in the coverage include being let go at work due to workforce reductions, or a sitation where you're unable to work due to a medical issue.  The specific coverage areas, and offered benefits vary depending on the company that sold the PPI.  These types of policies are typically bundled with a consumer loan, home mortgage, or credit card agreement.  It's also possible to buy the policy as a standalone instrument, although that's less common.

What is the controversy?

From about 1998 until just a few years ago,  journalists in the UK uncovered a pattern of sales and claims processes that showed widespread occurences of fraud, misuse, and both intentional and unintentional mismanagement of these policies.  Consumers that should have not have been eligible for coverage, for example, those under the age of eighteen, were being sold the coverage anyway.   Others were being sold PPI coverage without being told that it was rolled into the loan.   Still others were not informed about key clauses in the policy that excluded certain medical conditions.   Similar problems existed on the claims side, where consumers with clearly valid claims would receive automatic denial of benefits.

What's been done then?

A series of punitive actions were taken against the sellers of PPI that were not using sound practices.  Initially these sanctions consisted of fines and government mandates to change practices.   Unfortunately, these changes did not result in the sort of industry-wide reform that was needed.   The situation culminated in a landmark ruling in the high court in April of 2011.   The court ruled that the industry create, immediately, a system where any consumer was mis-sold a PPI policy be entitled to a refund of all premiums, as well as any accrued interest.   The scope of the ruling was enormous, forcing banks to set aside, initially, a total sum of around 4 billion pounds to handle the expected influx of claims.   And, the number of claims has far exceeded that initial expectation, with current estimates saying that a figure of 10 billion pounds is more likely needed.

What do I do if I have a valid PPI complaint?

This will depend on what your specific complaint is. If your complaint is about a policy where you have been “mis-sold” PPI, or perhaps have a dispute about the refund of premiums, this is something you'll want to take up with the seller of the policy.  Normally, this is the bank or lender that you got the loan from.

On the other hand, if your complaint is about a valid claim for benefits that's been declined, you'll want to talk directly with the insurance company that's holding the policy.   The insurance company's name and contact details
are always in the paperwork that came with the  insurance policy.

If you aren't who to contact, or where to start, you might consider contacting the ombudsman's office.  They're very experienced with PPI, having processed over 100,000 complaints on the matter for 2 years straight...over 150,000 for the fiscal year 2012 alone.

What's the current state of the PPI Scandal?

It's a pretty grim picture for banks, and perhaps for the UK economy in general.  Recently released data from the Financial Services Authority (FSA) shows  that banks and other lenders are active processing over  2 million complaints between January and June of 2012.  This is about a  a 130% increase as compared to the six prior. This rise was unexpected, and the costs of these refunds is far exceeding what the industry anticipated.

Banks have estimated a figure of  £10bn to settle these claims, but even that revised estimate may be short of the actual cost.  Recently, the popular website Which? suggested that at the current rate of filed complaints,  some notable banks will exhaust the funds they've set aside for this purpose before the year's end.

The CEO of Which? was directly quoted as saying:

"With well over 2m PPI complaints being made in just six months, PPI is now the biggest financial scandal of all time."

Our advice then, is to get your claims in quickly, before the scope of the problem prompts bigger changes, and likely, a delay in getting refunds to consumers.


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