How much PPI was mis-sold?
The total amount of mis-sold PPI reclaimed across the entire PPI industry stands at £26bn, since January 2011. There is no definite answer as to how much PPI was actually mis-sold to customers by lenders and most estimates have already been surpassed. Gladstone Brookes have already been successful in reclaiming £775m± for our clients with a 94% success rate in cases where PPI is found on the agreement.
Exposing the banks
In 2005 a ‘super complaint’ by Citizens Advice, to the Office of Fair Trading (OFT) followed a report they published which condemned PPI as a ‘protection racket’.
The Financial Services Authority (FSA) took action. In a mystery shopping exercise, they uncovered layers of poor selling practices and lack of compliance which led to the mis-selling.
As the FSA dug deeper into the exploitative actions, they began fining companies increasingly large amounts, with Santander fined £7 million for mis-selling.
The number of complaints continued to rise and, in 2010, the FSA issued a consultation paper outlining how complaint handling could improve. The banks fought the recommendations in the High Court, however after their objections were overturned the resulting publicity only opened the floodgates for a barrage of new claims.
Why was PPI purchased?Payment Protection Insurance was a type of cover intended to protect the buyers’ repayments, should their income be affected by accident, sickness or unemployment. What should have been a precautionary, optional product, was grossly mis-sold on an enormous scale to people who didn’t ask for, want or need it. Many people who bought PPI would not have even been eligible to use the product, should the worst have happened.
PPI mis-selling examplesExactly how was PPI mis-sold? Here are some examples:
- Added to finance agreements without consumer knowledge or consent
- Sellers disguised the PPI extra as a part of the packages they sold – buyers’ thought it was actually mandatory, rather than an option
- Sold to customers already covered by another policy, like full sick pay from an employer, making it an unnecessary cost
- Students, unemployed or retired people were all mis-sold to, as PPI doesn’t pay out for these groups
- Exclusion clauses weren’t disclosed, meaning pre-existing medical conditions present upon buying PPI that would void any payout were disregarded
What if I received full sick pay from my employer?Many employers, like the NHS or the forces, guarantee full sick pay. This means their employees may not be eligible for PPI payouts. Would you have needed your PPI policy if you received full sick pay? If your lender didn’t enquire about your sick pay policy, or sold you PPI regardless, you may have been mis-sold too.
Medical conditionsLike most insurance policies, PPI policies contain ‘exclusion clauses’ that allow loaners to refuse payout in particular circumstances. One such clause relates to medical history and pre-existing conditions. Several of these can lead to a policy being rendered void, including:
- Heart conditions
- Back problems
Part time employment
Many PPI policies only protect people working more than an average of 16 hours per week. If you were working less than this – or if you notified your lender of your working hours falling below 16 hours a week without the policy being cancelled – then you could be entitled to reclaim your premiums.
When insurance expires
Many discerning, conscientious borrowers took steps to protect their repayments, buying PPI policies they thought were sensible investments. Imagine the trauma then, of falling seriously ill a few years later only to find your policy has expired without notification from your lender. Lenders often sold inadequate or inappropriate policies – leaving customers unaware they were not receiving the full protection that was expected from the policy.
Many lenders are guilty of overlooking – or disregarding – existing cover. This means borrowers already had insurance or employment cover that would protect them in the event of sickness or unemployment. This often meant PPI was not necessary, and therefore could have been mis-sold.
Did your lender check whether you had existing cover in place?
Failing to explain cost
Lenders are duty-bound to make borrowers fully aware of the costs involved in buying a policy. This is especially true with PPI, where customers should understand the entirety of their monthly repayments, including interest and how this is calculated.
Unfortunately, many lenders did not fulfil this vital need, leaving customers confused and more out of pocket than expected. This is another form of mis-selling, which could now entitle you to reclaim all premiums paid on the PPI.
How does PPI pricing differ?
Single premium policies
The most common types of mis-sold PPI, these policies are sold alongside loans and mortgages, and borrowers must pay the full cost of the policy up-front. Here’s an example:
On a loan for £5,000, your policy (which costs 40% of the loan) would cost an extra £2000. Remember, that’s £2,000 up-front, which you may have to loan as well. Instead of only £5,000, you’ve now got a £7,000 loan you’re paying interest on.
Single premium policies are normally offered for five years, and are paid off before your actual loan amount. This extends the loan period so much that it actually risks extending beyond the policy period, meaning you’re no longer covered on what you’re paying for.
Monthly premium policies
These policies are sold alongside credit cards, loans and mortgages and are repaid on a monthly basis, rather than being paid for upfront as a single premium policy would be. They are commonly mis-sold to borrowers who are unaware they have been sold the policy along with their agreement.
As with any policy, circumstances and eligibility should be clarified with you before the product is sold.
Dishonest sellingA common practice of mis-selling was leading borrowers to believe PPI was a compulsory addition to their loan – which would be completely untrue. Some lenders even told customers that PPI would improve their chances of loan approval or credit rating. This is also untrue.
While these mistruths weren’t always said explicitly, clever wording was used to imply that no PPI would result in buyers’ loans not being approved. Once again, these are gross examples of mis-selling, which could entitle you to claim for any PPI premiums you have paid.
One of the most shocking forms of mis-selling PPI has occurred where lenders have secretly added PPI to loans, credit cards or mortgages without the knowledge or consent of the customer.
How do I know if PPI was secretly added to my policy?
Not sure if you’ve been charged for PPI? Try reading your original loan documents. Watch out for any mention of PPI which, if present, would be listed as an extra. We also encourage you to check bank statements to see just how much PPI you might have paid.
How could PPI have been added without my knowledge?
Salespeople selling the loans, mortgages or credit cards to borrowers would only have to tick a box to discreetly add an expensive PPI policy to the borrower’s product.
Often, this deception would be concealed even earlier, in the initial quote for the loan: “Do you feel you could afford a monthly repayment of £X for your £10,000 loan?” If the answer was “yes” the policy would be added without explanation.
Buyers trust their lenders not to deceive them, so without checking documentation this breach of trust might never be found as lenders keep benefiting from expensive policies their customers never asked for.