PPI (Payment Protection Insurance) is a form of insurance cover that was applied to the vast majority of lending facilities by the Banks and other financial institutions and set up for clients from the 1980s through to 2009/2010.
The Payment Protection Insurance itself was applied to facilities in one of two ways.
- The first being as a one-off payment.
This was normally in relation to loan facilities, with the lump sum being added to the structure of the loan. In turn, interest was then charged upon the premium that was added. The premiums themselves could range (depending upon the length of time, and therefore the length of cover that was on offer) from a figure of between 15% to 25% of the loan value.
Therefore, it was an extremely expensive product to have added to the facility, meaning that interest was attracted. What this means is that instead of it being a percentage of between 15% and 25% of the loan value, it would actually increase the value of the premium to probably closer to 25% to 40% of the value of the facility when interest was then added!
- The other avenue that the lenders used to charge PPI was on a monthly basis.
Whilst monthly paid PPI could be found on some loans, it was normally found on mortgage facilities. The largest product area where the monthly payment was taken however, was in relation to credit cards or store cards.
Basically, any facility where you had an overriding limit and you borrowed up to that amount on a monthly basis (paying off chunks or paying it off fully each month) would attract a monthly payment of PPI premium. This premium was calculated upon each £100 that you were borrowing at the end of the month, and applied on your account the following month. So, therefore if the PPI premium was £3 per £100 and your balance at the end of the month was £1,000 (which you did not clear) then the company would charge you £30 PPI premiums.
What is most clever about the monthly premium collection is that it was part of the transactions that you had with your credit card and, as with most credit card statements, people ignored the various individual transactions, mainly focusing on either how much they had to pay off to clear their card facility, or to make a minimum or over-minimum payments. Therefore, certainly with credit cards, the vast majority of people who had the facilities were not aware that Payment Protection Insurance applied at any given time and it is certainly worthwhile checking.
PPI (allegedly) covered the consumer in the event of a number of instances from the pitfalls of the borrowing, should something happen such as unemployment, accident, serious illness or death. Unfortunately, the cover was extremely costly. Due to the way that the cover was set up, it would usually only provide protection for a maximum of 12 months, unless of course the consumer died, in which case the borrowing was repaid in full.
Unfortunately, there were so many terms that had to apply in order to qualify for a payment that the vast majority of people were rejected. In addition, the majority of claims had a three-month period before any payments kicked in. Therefore, if you were made unemployed you could only claim on the unemployment side if you were unemployed for a period of three months, by which time of course you would be seeking work, and if you had found work, then of course the premium cover would not kick in.
What a lot of people also did not realise is that the vast majority of the PPI premiums only actually covered the interest payments. Therefore, people found themselves in a position 12 months after the PPI policy had (if they were lucky) paid out any money at all, with a balance exactly the same as when they started, although the premiums themselves would have only just made the interest payments.
Sadly, the PPI cover was wholly inadequate for the vast majority of people, which is why a “super complaint” was instigated and the Financial Services Authority (now the Financial Conduct Authority) who began an investigation and a court case against the Banks in relation to the mis-selling of PPI, which was wholly mis-sold by the vast majority of all lenders, especially the High Street Banks.
So far, to the end of 2015, almost £30billion has been refunded in relation to claims for mis-sale of PPI, but this is only a small percentage of all those people who have had Payment Protection Insurance policies (certainly throughout the 1980s and 1990s) who have not made a claim, as they do not have the necessary paperwork or do not believe they can make a complaint without this paperwork.
This is of course untrue. We deal with a vast majority of people who do not have information confirming whether PPI was applied, or not. We do all of this on your behalf under a “No Win No Fee” basis.