Payment protection insurance, also known as PPI, has become the topic of heated debate in the financial world. What started out as a way to protect both lenders and banks turned into a huge scandal that rocked the financial world of the United Kingdom.
Back in the 1990s, payment protection insurance was a regular part of the borrowing money process.
Banks offered this insurance to borrowers when they took out loans, credit cards and mortgages. The idea behind this insurance was to protect the borrower, which, in effect, would also protect the lender. This insurance was meant to offer repay a borrower’s loan if he or she:
Of course, given the nature of finances and the unexpected, PPI seemed to be an excellent way to protect oneself when borrowing money.
After all, you never know when could fall into a financial bind and not be able to pay your debts. However, while this insurance started out as a good and wholesome idea, it soon turned into a financial outrage.
What went Wrong With PPI
The banking industry soon realized that payment protection insurance was actually quite profitable.
Several banks that offered this insurance stated that they were giving back a mere 15 percent of the money that they made off of the sale of these claims in coverage.
As it turns out, with such a low rate of return, payment protection insurance became a highly lucrative endeavor for banks.
In fact, the sale of PPI was even more beneficial for banks than the sale of homeowners or automobile insurance.
With such a huge profit margin being gained from the sale of PPI, banks started to take advantage of their borrowers and the sale of this insurance. Thus, the mis-sale of PPI insurance came to be.
Mis-Sold PPI – The Full Story
Since banks were making such huge profits off of the sale of payment protection insurance, they began to misinform and even not inform their clients.
Borrowers were mis-sold payment protection insurance if they were not:
There were several stipulations that went along with payment protection insurance in order for a borrower to actually be covered by it. In order to be eligible for coverage of PPI, you need to be:
This means that if you fell outside the specified age ranges, you were ill and aware of your illness, you were self-employed or worked in a position that was not secure (seasonal or not full-time), you would not be covered by PPI.
However, despite these terms, countless people were not made aware of the stipulations and as such, they purchased the insurance. Given the nature of these guidelines for eligibility, those who were unaware of the terms of PPI were not able to actually file a claim and benefit from the insurance when they actually needed it.
In addition to not being made fully aware of the details of PPI, many people were simply not informed that they were purchasing this insurance. They signed paperwork associated with their loan, mortgage or credit card and, unbeknownst to them, payment protection insurance.
The mis-selling of payment protection insurance led to countless people paying for insurance coverage that they didn’t even know that they had, or that they thought would cover them, but they wouldn’t ever be able to benefit from.
PPI Claims & How The Truth Unfolded
Between the 1998 and 2005, issues with payment protection insurance started to become noticed.
Borrowers started to notice that they were not being protected by the insurance that they purchased, or they became aware that they were making payments on a type of insurance that they never knew they purchased.
These issues started to gain attention and made headlines in the British papers “The Daily Telegraph” and the “Sunday Telegraph”.
As a result of this questionable activity, the FSA stepped in 2005. The FSA started to regulate the sale of payment protection insurance and started to review the sale of this insurance.
The FSA then made its first report against payment protection insurance. This report was made based on the grounds of poor selling and a complete lack of control in the market of the selling of this insurance.
The Final Note About PPI
As more and more attention began being paid to the mis-selling of payment protection insurance, more and more people became aware that they were, in fact, victims of this financial scandal.
PPI Claims started to be made at an unprecedented rate. As a means to settle those claims and make right the mis-selling of payment protection insurance, the banks that were part of the mis-selling ring started to pay back their customers.
British courts found that literally billions of people were eligible to file PPI claims and receive PPI Reclaim compensation for the PPI that they were mis-sold.
In fact, the debts owed by banks that were involved in this scandal are so large that many banks set aside funds to compensate their mis-lead customers.
Many banks have been reported to put aside £3.2 billion pounds, or more, to reimburse their borrowers for the PPI Claims they are expected to make.
While the payment protection insurance scandal has been making headlines for quite some time now, it will be quite some time before the claims against the mis-selling of this insurance are settled.
In 2013, banks continue to contact borrowers who may have been affected by mis-sold PPI and borrowers continue to analyze their paperwork and find that they were, in fact, victims of the scandal.
The PPI scandal is one that took the British banking system by storm and its effects will be felt for a very long time.