Reclaiming Payment Protection Insurance

The hordes of people reclaiming money from financial institutions has been one of the biggest stories of this year. People have been reclaiming bank charges, credit card charges and mortgage exit fees. The newest addition to this list is payment protection insurance which is sold alongside loans, mortgages and credit cards. Mis-selling of this product has been rife and some people have already got back thousands of pounds simply by sending off one letter.

What is payment protection insurance?

Payment protection insurance or PPI pays out if you are unable to meet your payments on a loan, credit card or mortgage due to unemployment, accident or sickness. It’s also known as mortgage payment protection insurance (MPPI) or credit card repayment protection (CCRP).

It sounds innocent enough and a useful form of cover to have. But there are many problems associated with it. Firstly, it is often sold alongside a loan and a mortgage, and financial providers have charged way over the odds for it as people didn’t know any better or, in some cases, didn’t even know they had it! Indeed comparable cover from a standalone company is a fraction the cost of buying it direct. On products like personal loans, pretty much all of the profit is made from PPI with the banks making virtually no profit on the loan itself.

For example, a £10,000 loan over five years currently costs as little as £195 a month. But add in PPI and the cost can soar to £245 a month. Over the course of the loan this means you would pay £1,700 in interest but a whopping £3,000 for payment protection insurance!

Secondly, although payment protection insurance is optional, financial providers have often claimed it’s a condition of taking out a loan or automatically put you down for it unless you specifically stated you don’t want it.

Lastly, it is often sold to people who haven’t needed it or haven’t been able to make a claim on it anyway. For this reason, payment protection insurance has one of the lowest payout ratios of any form of insurance. Only around one in five claims is reckoned to be successful.

Concerns about payment protection insurance have been steadily building for years. Recently the regulators having been looking at this area in some depth and the FSA has fined several companies for mis-selling. This has helped to open the door for further claims.

Do you have payment protection insurance?

The first thing to do is to check your loan documentation, where the amount for payment protection should be separately listed. You may even be able to claim on loans that you have already paid off. If you can’t find the paperwork you can request from your loan provider as they are obliged to keep records for six years after you have paid off your loan. The older your loan is, the less likely a claim is to succeed, but it’s usually worth having a go.

Have you been mis-sold?

There are many ways you could have been mis-sold payment protection insurance. For example, were you told it was a condition of getting the loan or that taking it out would result in you getting a better interest rate?

If you are self-employed then unemployment insurance is obviously not much use to you. The same goes if you were unemployed or retired when you took out the loan. If you had a medical condition when you took out the loan and weren’t asked about this you also could have been mis-sold as, like most forms of insurance, PPI won’t pay out if you make a claim for a medical condition you already had.

You could also have had an income protection plan via your employer, which would have meant you had no need for additional cover.

If you had what is known as a single premium policy and repaid a loan early you may also be able to claim for mis-selling. Here, rather than paying for the payment protection insurance on a monthly basis, it is added to the cost of the loan on day one. If you repaid the loan early, you probably didn’t get a pro-rata refund for cover you no longer needed and you’ll be able to make a claim for this amount.

Finally, if you’re a customer of a company that has already been fined then you also stand a good chance of making a successful claim. These firms are listed on the FSA website.

Making a claim

One letter could be all it takes to get your money back. Write to the company concerned stating the details of your loan and that it you believe it was mis-sold to you and why.

In many cases, firms will pay out straight away and your cover will be cancelled. If they object then try a second letter saying that you are going to the Financial Ombudsman. This is a free service which rules on such disputes. If the company still refuses after your second letter then contact the Financial Ombudsman and they will examine your case.

You might be tempted to use a company to help you with the reclaiming process. Like endowment reclaim companies, they charge around 25% of any compensation you receive so you’re better off avoiding them as this is money for old rope as far as they are concerned.

Finally, what if you think you need payment protection insurance but are worried that you are paying too much for it? That’s easily solved too. Find a cheaper standalone provider such as British Insurance or Paymentcare and then cancel your payment protection insurance with your loan provider.

For the £10,000 loan example quoted above, stand alone cover for a 35-year old could cost £7.50 a month. That’s a less than a sixth of the additional £50 a month charged by the loan provider.