PPI was a product associated with loans, credit cards, car finance, charge cards and mortgages. It was used to protect consumers against missing monthly payments in the event they had an accident, became sick or were made redundant through no fault of your own. Most PPI policies had a ‘cooling off’ period and this kicked in after a period of 28 days. The cooling off period allowed consumers to cancel their policy. PPI policies were usually active throughout the time of the loan, only.
Payment Protections Insurance (PPI) is the biggest mis-selling financial scandal in the UK. The first PPI policy to be complained about occurred in Bristol which resulted in the first confirmation of mis-sale, in 1995. Lenders halted selling PPI policies in 2007 and the competition commission introduced a complete ban on point of sale PPI in 2010.
Most PPI policies were sold on what is classed as a non-advised and an advised basis.
Non-advised basis – the lender gave the consumer as much information as possible but failed to give advice or recommendations such as if the consumer had enough savings to cover themselves or they were self-employed, both these cases would indicate the consumer did not require PPI.
Advised basis – the lender took adequate steps and recommended the best option for the consumer, although even in these circumstances mis-selling was rife since the lender was making a fee for each sale.
When a consumer took out a loan or credit card they would have been offered PPI as an additional product attached to the loan.
There are two broad types of PPI policy;
- regular premium policy – a premium is calculated and paid on a monthly basis, mainly associated with credit cards
- single premium policy – primarily associated with loans, the cost is added to the loan and paid off on top of monthly loan payments
However, most lenders were urged by brokers to up-sell single premium policies to the consumer since these paid higher commissions, on top of this in the recent Pelvin v Paragon case the Supreme Court ruled that Paragon failed to disclose the brokers commission in relation to the sale of a single premium PPI policy. The key point with this case was the client wasn’t complaining about their PPI policy being mis-sold but the fact the brokers fee was not disclosed. The total amount borrowed was £34,000 with £5,780 in an upfront PPI premium. However, 71.8% of this was taken in commission by the lender to cover the broker’s fee.