Payment protection insurance, better knowns as PPI has been in the news a great deal over the past two decades and it has a good reason.
It now holds the dubious title of being the worst financial scandal to have ever hit the UK.
Millions of consumers required financial help and advice from the people and institutions they thought they could trust their banks. Instead of receiving this help and information they instead received what could only be described as daylight robbery.
Rather than getting what they needed many unsuspecting customers were tricked into taking out an insurance policy that was of no use to them.
In 2011, the High Court ruled that the banks and lenders who mis-sold this insurance must repay what they unfairly took. They were also instructed to pay their victims compensation on top. As a result, banks and lenders have now been issuing PPI refunds since then, and the PPI scandal shows little sign of coming to an end anytime soon.
PPI: The Lowdown
PPI was sold to borrowers with credit products such as credit cards, loans and mortgages for example. It was meant to assist those who lost their income for a period of time. The loss could have been for a number of reasons, this includes:
- Becoming unemployed
- Through sickness
- Through death
The most common types of PPI that were mis-sold were:
- Single premium policies on unsecured loans (around 48% of all PPI policies sold)
- Credit card PPI (around 36%)
- Regular premium policies on loans or mortgages (around 15%)
PPI was not an easy product to get your head around. It had very complex pricing and benefits with detailed terms and conditions so it could not be sold easily.
PPI was not suitable for everyone so firms selling the product should have taken the correct measures when selling it.
All too often the banks failed to exercise the necessary care with the result being the PPI scandal that is still being cleaned up to this day.
The Banks’ PPI Refund Bill
When the PPI scandal first surfaced, it was estimated that the total bill for the banks would be £4.5 billion but looking back this figure is almost laughable now. As of last July, the total amount paid out for mis-sold PPI already topped £20.5 Billion. PPI proved to be a highly profitable product for firms who sold the insurance as it was a premium product.
PPI sales grew rapidly through the 1990s and peaked in 2004. The full ins and outs of how it came to be so widely mis-sold is not clear, but it seems that profit was the underlying factor. The net result is that millions of consumers were tricked into taking out PPI that they either didn’t need, didn’t know about or that was useless to them.