Still major problems with PPI cover sales

Over the past couple of years controversy over Payment Protection Insurance cover has dominated the financial news, after it was found that many lenders and providers had been selling the insurance to consumers that did not want or could not use the cover.

The purpose of PPI cover is to meet repayments on debts for a specified amount of time in the event that the policyholder was unable to work or earn money for a period of time due to redundancy or ill health.

However, whilst this insurance can provide peace of mind to some people it is not suited to everyone – something that many lenders and providers appeared not to acknowledge.

The problems over the past couple of years have stemmed from consumers being sold this payment protection insurance cover when they could not use it, and in some cases even when they did not want it.

Some lenders made out that the consumers could not get the finance that they were after unless they also took out PPI. Some tried to convince consumers that they had to take out cover with them rather than shopping round to find the most affordable cover – this is not the case, as you can take PPI from any provider.

In some cases PPI cover was being added to finance agreements even without the knowledge of the consumers, leaving them with far higher monthly repayments because the very high cost of PPI had been added.

Following the indepth investigation into PPI sales the UK’s financial regulator, the Financial Services Authority, really clamped down on the mis-selling of this insurance cover, bringing in new guidelines and regulations, and handing out harsh penalties to those found guilty of this practice.

However, despite the authority’s best efforts it appears that the practice is still rife, with around two million consumers still thought to have PPI cover that they can never benefit from.

Further evidence of massive mis-selling has been uncovered by the Competition Commission, the Office of Fair Trading, and the consumer campaign group, Which?. It is estimated that out of the six million people that have taken out PPI over the past five years around two million – or one third – cannot actually claim on their cover.

This includes consumers who were sold cover when they were unemployed as well as pensioners who were sold cover even though they have no income to protect.

An official from Which? recently said: ‘We’ve always known that people were being mis-sold payment protection, but we were still amazed to discover the scale of it. It appears that salespeople are chasing their commissions, their bosses are chasing profits - where’s the sense of responsibility to the customer?’ An example was one woman who was sold cover when she was unemployed. She said: ‘Some months later I was diagnosed with a rare form of multiple sclerosis. I went to the bank to ask about the insurance, but they told me it was void. Eventually, after being passed from pillar to post, I was told that I should not have been sold the insurance in the first place as I was unemployed at the time.’

The British Banker’s Association has stated that people should not be put off from taking out PPI, as it can prove invaluable in the event that they cannot earn, with one official stating: ‘PPI provides borrowers with a plan B if their circumstances change. If they lose their jobs or become ill, their commitments can still be met, so it’s important that people are not discouraged from taking it out.’

However, it is clear that consumers need to check very carefully to see whether the policy meets their needs, as they may otherwise end up paying good money for a policy on which they can never claim.

The FSA has been taking action against firms found to be mis-selling PPI, and one of the largest fines handed out over this issue was earlier this year to HFC bank, which was fined a massive £1.085 million for engaging in this practice.

However, whilst the FSA has been sending out new guidelines and regulations to firms that sell PPI it seems that the message is not getting across to everyone.

One FSA official said: ‘We have had three major goes at it now. Improvements are being made but firms are still failing in certain areas, so clearly the action we have taken has not been totally effective yet, but a lot has been achieved.’

Another official warned consumers to watch out for insurance tricks, stating: ‘Customers should be careful when taking out PPI and shop around for the best deal. PPI can be a good thing, but look for a policy that covers all of your loans rather than just one. Also watch out for tricks, such as the bank lumping the insurance on top of the loan and then charging interest on the whole sum.’