Payment Protection Insurance (PPI) Problems with PPI
Many firms have been fined for breaking the rules and failures in the way they sell PPI to customers.
Although there are clear rules that any firm or adviser selling a PPI policy has to follow, mis-selling is still a problem and consumers could be missing out on claiming back money that is rightfully theirs. Which? research shows that at least two million people may have a PPI policy they would never be able to make a claim on.
PPI on credit cards
Which? found that almost 13% of people surveyed believed getting PPI was a condition of their credit card deal, or that their application was more likely to be accepted if they had PPI.
According to the Competition Commission, credit card PPI is the second largest slice of the PPI industry, but only 11% of claims are actually paid out, so it's big business for providers.
Big profits on bad PPI products
In October 2006, the Office of Fair Trading (OFT) estimated there were approximately 20 million policies in force, with between 6.5 and 7.5 million further policies being sold each year.
The profit the industry has made each year from the sale of PPI policies is estimated to be £5 billion. And to make matters worse, the OFT found only 20% of the money collected in premiums is ever paid out in claims.
Overcharged by £1.4 billion a year
There was enough evidence to convince the OFT that the PPI market wasn't working for consumers. In February 2007, the OFT referred the issue to the Competition Commission.
In June 2008, the Competition Commission published its provisional findings on the PPI market. It concluded that 'companies face little or no competition when selling payment protection insurance to their credit customers, and as a result customers appear to be overcharged by over £1.4 billion a year.'
The regulator for financial services – the Financial Services Authority – has also carried out extensive research into the selling of PPI, resulting in several providers being fined. It published its findings in three reports. They show that despite previous warnings, many firms are still failing to treat customers fairly.
Between 25-28 January 2011, the British Banker's Association (BBA) took the Financial Services Authority (FSA) and Financial Ombudsman (FOS) to court. The BBA lost its PPI court case over complaint handling rules on PPI.
Medical exclusions on PPI policies
Payment protection insurance policies often have many exclusions, so you can't be certain that you'll get any money if you do make a claim. For example, if you have a medical condition (even if this isn't particularly serious) when you take out the insurance and weren't told about any exclusion relating to this, you won't be covered for anything that can be linked to that condition – in fact, you may not be covered at all. Most policies also won't cover you for conditions such as back pain or stress.
Paying for PPI after protection has expired
Most PPI policies only last for five years, so if your loan or finance agreement term lasts for longer than this, you could still be paying interest on insurance that has long since expired.
Store cards and mortgages
PPI linked to mortgages, credit cards or store cards usually pays out for a limited amount of time only. Most often this is just 12 months, though some policies offer a 24-month pay-out period. On some credit card PPI, the insurance only covers the minimum monthly payment, meaning your balance will hardly reduce.
Payment protection insurance is too expensive
Adding PPI to a £7,500 five-year loan could cost an additional £2,000-£3,000 - a ridiculous amount! Following a long campaign by Which? and other consumer bodies, single premium PPI (SPPPI) has now been banned by the Competition Commission. SPPPI was detrimental to consumers because you could end up paying interest on the insurance premium and the loan.
This table shows how much more you may have paid with single premium PPI before the ban:
|The cost of payment protection insurancea|
|Lender||Monthly repayment without PPI||Monthly repayment with PPI||Monthly cost of PPI||Total costs without PPI||Total cost with PPI|
|Highest prices in survey|
|LV (Liverpool Victoria)||£167.74||£229.90||£55.16||£10,064||£13,374|
|Britannia Building Society||£149.24||£201.61||£52.37||£8,954||£12,097|
|Lowest prices in survey|
|Leeds Building Society||£153.41||£171.82||£18.41||£9,205||£10,309|
|Bank of Ireland||£151.88||£172.20||£20.32||£9,113||£10,332|
- We compared the cost of a five-year £7,500 loan from 48 major lenders with and without PPI. The three most expensive and least expensive lenders are shown