Payment Protection Insurance was mis-sold for a whole host of reasons, but there is only one real reason why it was mis-sold – and that is because it made a huge amount of money for the Banks. In doing so they were able to generate revenue from consumers who otherwise were bringing extremely small amounts of revenue, or even no revenue whatsoever, and in fact costing the Bank (through operating their own current account).
Therefore, a relatively small account where someone was looking to borrow a loan facility could generate the Banks with huge profits, as premiums could reach anywhere from between 15% to 25% of the loan facility itself. Therefore, a relatively small loan of, say £5,000 taken over a period of 5 years, could attract a premium in excess of £1,200. Once this is added to the loan of course, it would also attract interest and therefore the Bank (with a relatively small loan of £5,000) could make a profit of approximately £1,500 on the premium. This is in addition to the interest that they would get on the loan itself. Therefore, when lending facilities such as loans and credit cards all applied PPI, the Banks were making absolutely huge sums of money!
In fact, if you look at the number of claims that have been made to date, and the amount that are outstanding, the refunds made total approximately £30billion (to end 2015) are probably only a small percentage, perhaps of only 10% or 15% of the potential refunds that are available for consumers (especially those who took out facilities certainly in the 1980s, 1990s and 2000s) who have not made a claim for various reasons.
The vast majority of people do not make claims because they are unaware that PPI was applied. However, it is essential that if you did have any form of borrowing, and regardless of: –
- whether you know any details or;
- whether you have any paperwork or;
- whether you can even remember whether PPI was applied;
Banks themselves undertook extremely aggressive sales conferences and courses in order to make sure that their staff were fully appraised with how best to sell PPI. I, myself, have been on a number of courses with the High Street Bank that I formerly worked for. You were basically given clear instructions that anybody who walked into the Bank asking for any form of borrowing facility walked away with PPI.
The level of training we had meant that if somebody did walk in and asked for any form of borrowing, they literally had no choice but to take the PPI cover. At one point, Firms used to target sales staff stating that 95% of people must have PPI, and that anyone who refused the PPI (for whatever reason) on any form of borrowing needed to have the case run through a senior manager to give a final decision.
As a customer, if you therefore felt that it was your fault for having the PPI, think nothing of it as you had no choice and you were always going to have the cover as the Banks knew how to make you take the policy (or in the case that you were reluctant, would have added the policy regardless to the facility).
The Financial Conduct Authority (FCA) became involved with the mis-selling scandal following a super complaint by the Citizens Advice Bureau in 2006. They located vast swathes of financial institutions adopting the same dubious techniques in promoting Payment Protection Insurance and not establishing that people were eligible, and sold the policy aggressively. The policy itself was deemed tantamount to useless, and very expensive.
Basically, anything that was bad with the policy was picked up, and there was not much good about it!