Payment Protection Insurance

The High Court recently ruled that the Financial Services Authority is entitled to impose tough retrospective rules concerning the sales and complaints in relation to the sale of Payment Protection Insurance (PPI). The British Banker’s Association has also declared that it does not intend appealing the decision. Many are considering this now to be open season in relation to complaints and litigation concerning the mis-selling of PPI.

There is little doubt that there has been a significant issue concerning the way in which many lenders have sold Payment Protection Insurance; and indeed much genuine concern surrounding the real world benefit of such insurance.

Given the recent ruling many of the top banks and lending institutions have put money aside to deal specifically with the complaints. Indeed others have gone further and requested an extension of time to deal with the number of complaints that they have received. Of course a number of the banks were hedging their bets in relation to the ongoing litigation and in a time of financial crisis a large number of claims, complaints and investigations were placed on hold pending the High Court decision. This of course created a back log of complaints that the banks and lending institutions need to sort through ahead of the looming deadline.

It is reported that following the ruling the number of complaints concerning the mis-selling of PPI has increased, placing further pressure on the beleaguered lending system. One of the difficulties lenders are facing is sorting the good claims from the bad. Merely being sold PPI is not in itself a reason for claiming the cost of paid premiums; there are many cases where the sale of PPI was perfectly genuine and all procedures and guidelines were followed.

Add into the mix the wealth of claims management companies who offer to recover the mis-sold premiums for a cost (often 25% of the total recovered) who have also now presented claims that they previously held back claims pending the High Court decision; and it is clear that many lenders have become overwhelmed.

There is still a lot of uncertainty as to how people may have been mis-sold PPI, and how to go about making a claim. In broad terms PPI may have been mis-sold in the following circumstances:

1. Where the PPI was optional, not being informed that the insurance was optional and what the insurance was designed to cover.
2. Being advised and/or encouraged to take out the policy without a full explanation, including the provision of a demands and needs statement and confirmation as to why that particular policy was being recommended.
3. Not being advised about significant exclusions to the policy, particularly where the information was already available to the lender, for example if the policy did not cover the self employed; or if the policy did not cover pre-existing issues.
4. Where the policy related to a finance agreement lasting longer than terms of the agreement itself, and no confirmation was given that the policy would expire before the agreement.
5. If it was not made clear that the cost of the policy was in a one lump payment that was being added to the cost of finance and therefore interest upon the lump sum would accrue alongside the main agreement; even if the policy expired before the agreement.

Methods of complaining vary, and many people are finding that Claims Management Companies (CMCs) are offering seemingly attractive incentives to use their services. The procedure however is fairly simple and does not require the services of an “expert”. A complaint should be made to the lender who you believe mis-sold the policy. The lender has eight weeks to investigate the complaint and provide an answer. In the event that you are dissatisfied with the response a complaint can then be made to the Financial Ombudsman Service; within six months.

Legally a claim can be brought within six years of the event being complained of, and a policy may still have been mis-sold even if a claim has been made against the policy. Provided the lender or broker was regulated, the Financial Ombudsman will consider claims in respect of policies sold more than six years ago.

Whilst the procedure is straight forward and many people have successfully brought claims against lenders personally, there are some advantages to using expert advice. There is much anecdotal evidence to suggest that having a representative deal with your claim results in a higher, or at least more accurate, compensation. An expert will be able to assess the merits of an offer and consider the rates of interest that are being offered. Often they will offer peace of mind and remove the potential hassle of arguing a point that the individual may not be sure about. The disadvantage lies in the cost. As the costs for bringing a claim are not normally recoverable from the lender, the fees for expert services are normally based upon the amount recovered, generally speaking in the region of 25% plus VAT.

The “experts” offering this service could be CMCs or solicitors. Both CMCs and solicitors will be able to deal effectively with PPI claims however there are two main reasons why a client may choose a solicitor:

1. A firm of solicitors is regulated by the Solicitors Regulation Authority and the client is therefore afforded a greater protection in respect of how their claim is handled; and
2. A firm of solicitors will be able to – and indeed will be under a duty to – consider whether there are any further irregularities relating to the PPI policy or the credit agreement in connection with which it was sold.