Can you claim a PPI refund?
Payment protection insurance (PPI), designed to cover the repayment of loans, credit cards or mortgages in the event of the borrower being unable to work, produces £5 billion worth of premiums for lenders every year.
But with thousands of policyholders potentially mis-sold the product - often automatically included without their knowledge - and just 20% of claims paid out, the campaign to reclaim premiums is gathering pace.
Here's how you can find out if you're entitled to a refund.
1 Do I have a valid claim?
If, when you took out your loan or credit card, the cost of the PPI element and how it worked was not properly outlined, if you were told you could only take the loan if it included PPI cover, or - as on some internet application forms - the PPI box was pre-ticked, you may have a case. Also, if you didn't have a job when you were sold the policy or were self-employed, then PPI wasn't relevant to you.
2 Does the type of premium make a difference?
If you have a single premium policy, rather than regular premium, this may also be the foundation for a refund. Earlier this year, the Financial Services Authority (FSA) and PPI lenders agreed that borrowers who had cancelled their single premium policies should be refunded, overturning the previous no-refund policy on these contracts. This means that if you've cancelled a single premium policy for any reason, you can now claim a proportional refund, plus interest.
3 How can I get a refund?
Write to your lender (with a copy of the FSA announcement if it's a single premium policy, which can be found at fsa.gov.uk/pages/library/) and ask for a review. If it rejects your request, take the matter to the Financial Ombudsman Service. If you want to check the costs of your policy, ask your lender to send you a breakdown of your account - without paperwork a refund is unlikely. Don't use a third party reclaim company, as it will take a large chunk of any compensation.
4 What are my chances of compensation?
So far, the ombudsman has upheld around 80% of PPI cases, so you stand a good chance if your claim is fair. If it's a mis-selling claim you're entitled to a full refund; if it's a single premium policy you can get your interest repaid. However, if you've already received a payout on your policy you won't be eligible for a refund.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.