Further controversy arises over PPI
September 28, 2009
Over recent years PPI, or Payment Protection Insurance, has been at the centre of heated controversy and regulation changes. This insurance is a form of protection that is offered to consumers taking out finance such as credit card, loans, and the like, and the idea behind the cover is that if the policyholder is unable to make repayments for a specified period of time due to sickness, redundancy, or injury, the policy will then meet these repayments up to a certain period of time.
However, whilst the cover does sound valuable there have been a number of points that have caused the controversy. The first is that in many cases, such as with loans, the insurance was taken out as a single premium cover, which meant that the cost of the cover, which could be high, was added as a lump sum onto the loan, leaving the policyholder to pay interest on both the loan and the insurance.
Another factor that caused controversy was that there were many restrictions in place with regards to who could claim on these policies, but often they were being sold to people that would never be eligible to make a claim such as the self employed.
In many other cases it was found that this cover had been touted as being necessary to get the finance that the consumer wanted, leaving the consumer thinking that they had to take the cover to get the finance, and some lenders made it sound as though the borrower had to take cover from them when in fact they are free to shop around for cover if they wish to take it.
Now that the recession is in full swing in the UK further controversy has arisen with regards to PPI. Over recent months job losses across the UK have been soaring as a result of the recession, and many have suddenly found themselves being made redundant. For those that had taken out these PPI policies in the past the time has come to make their claims, but a problem has arisen in that some banks are now trying to get out of paying out on the policies.
According to a recent report around one in six claims on PPI are being dismissed, and often this is because the policy was originally mis-sold to someone that was not even eligible to claim. Banks and financial institutions were making around £6 billion a year on these policies before the recession, but now that the time to claim has arrived for many banks are using the small print to try and get out of honouring the claims.
Vince Cable from the Liberal Democrats has been outraged by the situation, and he recently stated: ‘This is outrageous and unforgivable behaviour. The same banks that profited from selling the insurance products are now potentially making these families homeless by dishonouring the policies.’
Another official added: ‘The banks and finance firms sold these policies like Smarties. Many people are now finding out they were overcharged for policies that were not fit for purpose.’
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Hopefully the new action by the FSA will assist consumers with reclaiming mis-sold payment protection insurance.