Mortgage Guides

Were you mis-sold PPI? Read our guide to reclaiming your money

Updated: 31st October 2011

By Martin Fagan

The high court has ruled that banks mis-sold PPI and consumers can now claim compensation. This guide outlines if you have a case and, if you do, how to get your money back.

It was a lousy product for the consumer, but payment protection insurance (PPI) was so profitable for banks and credit card issuers that they forced many people into buying it even though they knew it was unsuitable for them.

Good idea, lousy product

On the face of it, PPI sounded like a good idea. If you took out a loan or a credit card and lost your job or became too ill to work and couldn’t make the payments, the PPI policy would pay off the outstanding balance of the loan or card.

However, PPI was riddled with exclusions; it didn’t cover the self-employed, contract workers or pre-existing medical conditions that might prevent you from working and many policies were sold to people who were unemployed or retired and therefore didn’t have an income to protect.

Some borrowers weren’t told they were paying the PPI, others were deliberately misinformed PPI was compulsory and a condition of the loan. Many paid it monthly, but some were charged the full PPI premium up front and it was added to the loan, so increasing the loan amount and also the interest paid on it.

Also the cost of the PPI policy was expensive - between 13% and 56% of the actual loan or credit amount, depending on the lender.

PPI – the demise of a despised Product

In September 2005, Citizens Advice made a ”super complaint” to the Office of Fair Trading, calling on them to launch an investigation into the PPI business, which at that time had an estimated 20 million policies in force and produced annual revenue in excess of £5 billion.

In May 2008, consumer watchdog Which? published research that showed up to two million people had been sold a policy they would never be able to claim on, and in February 2009 the Financial Services Authority (FSA) wrote to banks asking them to stop selling single premium PPI with loans.

The banks went to the high court seeking a judicial review and, in April 2011, judges ruled against the banks. The court’s decision cleared the way for tens of thousands of customers who were mis-sold PPI to claim compensation, which could cost the banks £4.5 billion. Many believe PPI to be the worst ever case of financial mis-selling.

Beware PPI “ambulance chasers”

However, following the high court judgement and the subsequent announcement the banks would no longer contest or appeal against the court’s decision, a raft of PPI “ambulance chasing” no win, no fee websites sprung up asserting they can help consumers reclaim mis-sold PPI. Some are even remote blanket calling unsuspecting consumers about reclaiming on a PPI policy they may never have owned.

But consumers should be aware these websites are not charities and consumers who sign up with a claims handling company often find themselves caught out, as the majority of claims handlers charge upfront fees of several hundred pounds to review a case and can take up to 30% of any award.

If you have been mis-sold PPI, claiming it back is fairly straightforward, free of charge and any compensation you receive will be all yours.

Even someone who has paid off or cancelled the loan - or even successfully claimed on a PPI policy -can still submit a mis-selling complaint.

To see if you’re eligible to make a claim and how to go about submitting one to the lender, follow our step-by-step guide.

1. Check if you have (or had) PPI

Not as silly as it sounds. Many banks and other lenders didn’t even bother telling people they’d been sold a PPI policy and simply quoted monthly loan repayments with the PPI included.

Dig out the copy of the loan agreement containing a full breakdown of the costs. If you can't locate it, then ask your lender to provide you with one by submitting a subject access request under the Data Protection Act 1998. The lender is obliged to comply within 40 days, but check first if this is a free service or if a fee is required.

The loan agreement will detail if you’ve been paying PPI, although it may be called “payment cover” or a “payment protection plan” or “loan protector”, and should be expressed as a small separate monthly repayment or a bigger lump sum.

If you can’t find any details, double -heck the amount you borrowed over the number of monthly payments at the APR you were charged. If the monthly repayments look bigger than they should be, the PPI might be bundled in with the payment.

It’s easy to spot PPI on a credit card statement as it will be detailed as a separate item every month and vary depending on the monthly balance. Again, it may be called a number of things, but the point is this - did you agree to pay it?

2. Have I missed the deadline?

If your PPI policy is over six-years-old there is less chance of claiming due to something called "time barring". The Limitations Act 1980 says you should make a complaint within six years of taking PPI or three years of knowing there was a problem (the recent press coverage might have alerted you).

You might be able to claim further back than six years on a policy that has ended, but you will definitely need original paperwork as sellers are only obliged to keep records for six years.

3. How do I know if I have a valid claim?

Mis-selling takes many forms and PPI is no exception, but a successful claim against the seller will almost always depend on how the PPI was sold to you. The clearest cases of mis-selling are those where customers were sold the insurance when they had no chance of claiming on it or didn’t need it in the first place.

The following is a rough guide only to establish whether you’re eligible to claim. You may have a valid claim if:

• The adviser failed to tell you that PPI was included in the loan, either as an addition to your monthly premiums or as a lump sum added to the overall loan amount
• You were told the PPI was a compulsory part of the loan/credit card agreement - no PPI, no loan/card
• The so-called adviser failed to inform you of any significant exclusions under the policy, such as being unemployed, self-employed, on a fixed employment contract, retired or if you suffered from any pre-existing medical problems when you were sold the insurance
• The lender failed to explain the full cost of the insurance to you
• The adviser failed to ask if you had alternative insurance cover or employee benefits that would have covered your repayments if you could not work
• If you had to pay for the PPI as a single payment and the adviser failed to clarify that the insurance cost would be added to the loan and you would be paying interest on it.
• If your lender has already been fined by the FSA (Alliance &Leicester, Liverpool Victoria, Egg, Capital One, loans.co.uk, HFC Bank, GE Capital Bank Ltd (whichsupplies store cards for Asda, Comet, Debenhams and Topshop amongst others) have been fined for "not treating customers fairly". If yours has, it's very likely you've a case
• If you bought PPI after 14 January 2005 and the adviser encouraged you to take it out by saying something like “we strongly recommend that you consider taking out PPI”. If so, the sale counts as an “advised” sale and the lender/broker should have issued a “demands and needs statement” to show why a particular policy has been recommended and why it is suitable for you. If they didn't, this is grounds for complaint
• If you have had a bank refinancing package or bundled any outstanding debts into a consolidation loan, an insurance premium is likely to have been added and could potentially be recoverable.

4. How do I go about making a claim?

Part of the high court’s ruling compels banks to trawl their records for PPI policies which were mis-sold and to inform policyholders they may be able to reclaim their premiums, so your bank may contact you. But this may take time and, if you’re under deadline pressure, it may be better to start the procedure yourself.

If you’re eligible to make a claim for compensation, in the first instance, complain to the bank, credit provider or mortgage broker who sold the plan - not the insurance company that underwrites the policy. You can’t go directly to the Financial Ombudsman Service (FOS), which setles desputes between financial service companies and their customers, you have to give the lender the opportunity to resolve the matter first.

Write a letter including the policy number, your grievance (why you believe you were mis-sold the policy), your demands (compensation, refund of premiums with interest) and what you will do if the bank fails to resolve the case to your satisfaction (take the complain to the FOS).

Many examples of a pro forma letter to start the claims process for PPI mis-selling exist online, so do a search, download it and fill in the relevant details and delete the bits that don’t apply.

The bank has eight weeks to reply. If you’re unhappy with the bank’s response, complain to the FOS.

However, taking your comaplaint to the FOS isn’t the speediest way to resolve the issue. If the mis-selling case is absolutely blatant, a relatively quick way to reach a satisfactory conclusion is to seek redress through the county courts.

The first step is to notify the other party, in writing, that you intend taking court action. This is called a “letter before action”,and it could encourage the bank or lender to pay up and avoid an embarrassing court appearance. You should then ask your local county court for a claim form and the relevant explanatory leaflets.

If your claim is for £5,000 or less, it can be dealt with as a small claim using the court service’s “small claims track”. This procedure can be a relatively simple and informal way of seeking redress and you don’t need a lawyer. However, if the value of your claim is above the small claims limit of £5,000, you should probably seek the advice of a solicitor, as you will probably need representation in court.

5. How much can I expect to get back?

The FOS says compensation should return people who were mis-sold PPI to the financial position they would have been in had they not taken out the policy in the first place. In general, this means a full refund of all your PPI premiums to date plus interest of 8%.

According to the FSA, more than 1.5 million policyholders have already complained about PPI, with successful claimants typically receiving an average compensation payout of £2,750.

Are you still paying PPI?

Many people who are eligible to claim compensation because they were mis-sold PPI still have the loan or credit card on which the PPI is being charged and are still paying the premiums.

If you have it and don’t need it, cancel it. If you have a monthly policy (most PPI policies attached to mortgages and credit or store cards are monthly), you can cancel your policy at any time and you won't incur any further costs.

If you've paid for PPI covering the whole term upfront for a loan or finance agreement, thanks to new rules brought in by the FSA, it's now possible to cancel the policy before the end of the term. The lender must give you a fairly calculated refund, but can charge you “reasonable costs” for administration involved in cancelling the policy.

Even though the lender may give you a partial refund for the existing period of the loan, if you still feel you were mis-sold the policy in the first place, you can still claim back the premiums you previously paid using the measures described above.