Payment Protection Insurance: Were You Unfairly Charged?

Payment Protection Insurance (PPI) has been in the news a lot in recent weeks. Several lenders have been handed massive fines by various industry bodies, and new rules are being drawn up to better regulate the way in which these insurance products are sold. Indeed, a recent ruling established that insurers will no longer be able to sell PPI at the same time as a loan is accepted. Still, though, many people don't know what PPI is - which is worrying, considering the fact that one in three of us has a policy. Payment Protection Insurance is supposed to ensure that borrowers have their loan repayments met in the event that they can no longer work. As the economic situation has worsened this type of insurance has become progressively more popular, with many borrowers insuring against the possibility of redundancy.

Selling Practices

PPI sounds, therefore, like a good idea - and it can be. The problem is not so much to do with the product itself, but more to do with the way in which it has been sold. In the first instance, lenders have sold PPI to individuals who will never be able to claim on it. Around four out of five PPI claims are unsuccessful.

This is to do with huge policy exclusions which mean that, for example, self employed individuals cannot claim, and that claims made on medical grounds will only be accepted if they relate to a condition about which you told the insurer when you took out the policy. Furthermore, PPI policies bought directly from lenders are generally very poor value for money. They tend to be far more expensive than third party policies and, even worse, many lenders add the total premiums to the outstanding balance of your loan, thus pushing up your monthly repayments.

These questionable selling practices have come under increasing scrutiny from the Financial Services Authority (FSA) and the Office of Fair Trading. The FSA introduced new, stronger rules for PPI sales, and if your lender has not stuck to them you can probably reclaim your premiums.

In the first instance, you should note that PPI only came within the FSA's remit in January 2005. If your policy was sold before this, you will have to pursue a claim with the Financial Ombudsman Service. You should contact the Ombudsman directly if your claim will come under their jurisdiction.

When Can I Claim?

If your policy was sold after January 2005, there are a number of circumstances in which you should definitely make a claim. You should always claim if you were self-employed or retired when the policy was sold, as the insurance is useless. Furthermore, if you had a medical condition that could potentially have prevented you from working, you can claim if the salesperson did not explain to you that the insurance could be useless.

You can also claim if:

• the total premiums were added to the total value of the loan, in what is known as a 'single premium' policy
• the lender refused to give you a loan unless you took out PPI with them. The banking code forbids lenders from insisting that borrowers take out insurance with them, although they can insist that they have insurance from a third party
• you were older than the maximum age stated on your policy when you took out PPI. This is usually 65 or 70.
• the firm that sold you PPI has already had a fine levied against them. This vastly increases your chances of success.

As lenders realise the scale of the claims against them, most are giving refunds without too much hassle. You should begin by writing a letter to the company in question, outlining your complaint and asking for a full refund. If you receive a reply stating that the policy was fairly sold, you should write again demanding that the matter be settled in full within 14 days. In most cases this will be successful. If it is not, you should contact the Financial Ombudsman Service who will guide you through the claims process.