How Payment Protection Insurance Benefits Banks But Not You

If you have seen an ad where a robot suddenly comes up and asks you to claim your PPI before 19th August 2019, then you must be familiar with the term Payment Protection Insurance.

Payment Protection Insurance might be an alien concept to you, that is unless you’re working at a bank or living in the UK.

What is PPI and why is it being covered so extensively in the news?

As per FCA (Financial Conduct Authority), PPI was designed to cover repayments in circumstances where you cannot pay them yourself. This plan covers you if you are financially redundant or cannot work due to an accident, illness, disability or death.

Banks sell insurance covers with products like credit cards, overdrafts, mortgages and loans. If a person is unable to pay his debt then the bank can make recoveries from insurance money. PPI was widely sold by banks and other credit providers in the UK.

In most scenarios, customers never wanted to opt for PPI. However, banks presented them in such a way that it was a mandatory part of the loan. Banks pressurized customers to take PPI with a loan. In another scenario, people are unaware of the fact that they have even opted for the PPI.

Why did banks sell PPI?

If you take a loan for a period of 2 years and your monthly EMI is £100, the bank charges you £105. The amount of £5 is charged as part of the PPI cover.

£5 for 24 months

£5 x 24 = £120

So the bank earns an extra £120 from a single customer apart from interest. Now imagine the same for a million customers. The amount earned by the bank would be £120 Million, a white profit to the bank.

Banks earn billions of dollars from PPI insurance sale.

According to FCA, As many as 64 million PPI policies have been sold in the UK, mostly between 1990 and 2010, some as far back as the 1970s. Almost 20 million PPI policies were sold in the UK in May 2008, which increased to 7 million years in 2 years. Also, surveys showed that 40% of policyholders claim to be unaware that they had a policy.

The Financial Ombudsman Service stated in the 2009-2010 annual report, showed that 30% of new cases referred to the payment protection insurance.

Finally, FCA fined several financial institutions like Alliance and Leicester, an amount of £7 million. Capital One, HFC and Egg were fined up to £1.1 million each and some others were prohibited from selling PPIs.

The judicial review that followed made headlines as it eventually ruled in favor of the borrowers, enabling a large number of consumers to reclaim PPI payments. To date (January 2018), £28.5 billion has been repaid to consumers.

UK banks have set up multi-billion pound provisions to compensate customers who were deceitfully sold PPI policies.  Lloyds Banking Group has set aside £3.6 billion, HSBC has provisions of £745 million, and RBS have estimated they will compensate £950 million. Payment Protection Insurance has become the most complained about financial product ever.

How do you make claims against PPI?

It’s a very simple process and you do not have to include any third party claims on your behalf.

  • Online – Open the website of the bank that you think have sold you a PPI. Look for the PPI complaint page and submit your request with complaint points and products. It’s better to select all products as the bank could have sold out on every product.
  • Letter – You can simply write a letter to a bank for investigation about PPI on products that have been held, and provide your basic details.
  • Telephone – Call customer service and register your complaint.
  • Third Party – You can approach a chartered accountant (CA), or a third party who can make the claim on your behalf but they will charge between 8 and 30 percent commissions on returns.

Deadline for PPI complaints

FCA has set a deadline of 29th August 2019 to make complaints about PPI.

You need to refer your complaint to your provider, or to the Financial Ombudsman Service on or before the August deadline (by 11.59pm). Else, you might lose your right to have your complaint assessed.

Have you also been caught in the PPI web? Share your views in the comments section below.

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