What is Payment Protection Insurance (PPI)?

Payment Protection Insurance, sometimes called PPI, is Accident, Sickness and Unemployment Cover (ASU), which is sold with loans, credit cards, hire purchase agreements and mortgages. PPI is a form of insurance which will make repayments on a debt if your circumstances change leaving you unable to repay them yourself. Credit protection insurance and loan repayment insurance are other names for PPI.

Payment Protection Insurance will often cover repayments if you are left unable to work through illness or an accident, made unemployed, become incapacitated or die. It is often sold by banks or other credit providers as an add-on to the loan or overdraft which it is protecting. Payment Protection Insurance will cover minimum loan, credit or overdraft payments for a set period, such as 12 months.

PPI is generally very expensive however, and many policies have exemptions which make it difficult for a policyholder to make a valid claim. Millions of people have been mis sold unnecessary or unwanted Payment Protection Insurance in the past.

Why has Payment Protection Insurance been mis sold?

Some lenders have added Payment Protection Insurance without the knowledge of the customer. This means that many people have taken out credit cards or loans and paying for PPI policies which they do not know exists and therefore will never claim on, even if they needed to.

Some people were sold PPI under the premise that it was not an optional extra, or that a loan was more likely to be approved if they took out the policy.

Some companies, such as telesales operations, led customers into PPI policies by offering a credit card or loan and mentioning that it was ‘protected’ without fully explaining that the PPI protection was optional or explaining the plan in detail.

All of these are examples of mis sold Payment Protection Insurance and this happened on an industrial scale, affecting millions of people in the UK. By May 2008 20 million PPI policies existed in the UK, with an additional 7 million policies being purchased every year since then. It is estimated that up to 40% of PPI customers are unaware that they have been sold the policy.

PPI was mis sold for decades, and one major high street bank sold almost £400m worth of PPI, making around an 80% profit, much of which is suspected to be from unknowing customers. Mis sold Payment Protection Insurance often made banks and lenders more money than providing the loans themselves did.

In April 2011 the UK courts ruled in favour of consumers, preventing the mis-selling of Payment Protection Insurance in the future. Customers should now be encouraged to shop around and make a considered decision before purchasing PPI, and only purchasing PPI knowingly when it has been fully explained.

What can I do if I have been mis sold payment protection insurance?

PPI was mis sold with loans, credit cards and mortgages in the last 30 years. You have been mis sold payment protection insurance if you didn’t ask for PPI but it was added to your policy anyway, you were told that insurance was compulsory, you were told that your loan was more likely to be approved with PPI, you were not told that PPI was optional, or you were unemployed, retired or self-employed when you took out the cover. You are still entitled to claim even if the loan which your PPI covered has been paid off.

The first step to claiming is to contact an insurance claims company which specialise in PPI. They will assess whether you have a case and guide you through the claiming process.

What is mis-sold PPI?

Payment Protection Insurance (PPI) is a form of insurance sometimes called Accident Sickness and Unemployment (ASU) cover. It protects the repayment of a debt in the case of a borrower being unable to make payments for reasons out of their control. It was mis-sold by many loan companies and high street banks for a decade, with products such as mortgages, loans, credit cards and overdrafts being covered with unethical, and now illegal, PPI policies.

PPI was mis-sold by lenders to millions of people in the UK. PPI is classed as mis-sold if: it was added to a loan product without the policyholder’s knowledge; the policyholder was misled into believing that PPI was not optional; the policyholder was told that a loan or credit card was ‘protected’ without the full conditions or cost of the PPI being explained; or if the policyholder was led to believe that PPI would help with the approval of a loan. Some online lenders mis-sold PPI when they presented pre-ticked boxes for PPI, meaning that a borrower had to choose to opt out.

The mis-selling of PPI happened on a huge scale, with around a quarter of all PPI policies estimated as being mis-sold. This went on for a decade until April 2011. The courts then ruled that selling PPI in the ways mentioned was wrong and ordered banks and lenders to return a total of around £4bn of PPI to 2.5 million people in the UK. This money is only going to be returned to consumers who make a valid PPI refund claim.

Finding out if you have been mis-sold PPI

Now you understand the definition of mis-sold PPI, you may realise that you are one of the victims. Look through your loan agreement and find out if you have been paying money for ‘payment cover’, ‘ASU’, ‘payment protection’, ‘loan protection’ or a similar term. If you feel that these policies were sold to you under the false pretences mentioned above you are due a refund, even if the loan which your PPI was covering has been paid back.

You may find that your PPI was paid as an additional charge with each loan repayment, or as a one-off payment at the start of your contract.

If you are unsure who your lender was obtain a credit report, which will list all of your financial products. It doesn’t matter if you don’t have a copy of your paperwork for your loan either; once you know who your lender is, you have a legal right to obtain a copy of your original agreement from them for £1.

The rules of mis-sold PPI claims state that you can usually only claim if your account was active within the last six years. So as long as you were still paying back a loan and its mis-sold PPI six years ago, even if the loan was taken out ten years ago, you are due a claim.

How much can I claim?

Mis-sold PPI claims companies tell people whether they are entitled to make a claim and guide them through the repayment process. You will not be able to reclaim your full loan, but the mis-sold PPI on that loan will likely still be a sizeable sum which you can reclaim.

The figure which you are entitled to claim depends on the size of the loan, the cost of repayments and other factors. Someone who took out a loan of £3,600 for three years could be entitled to over £500. For bigger loans and mortgages this sum could be in the thousands.