Beat the Payment Protection Insurance blues
03/10/2007Mirror Money
Banks and building societies have been threatened with record fines and bans after ignoring two earlier warnings about flogging useless payment protection insurance (PPI).
And though the Financial Services Authority is probing 1.5 million policies, this is a small proportion of the 20 million in circulation.
The remaining borrowers will have to dig out their own paperwork and make a complaint if they believe they were mis-sold.
The FSA has already twice demanded lenders who rake in about £5billion a year to clean up their act.
Now it is warning a third offence will see them being hit with fines of millions of pounds.
A total of 24 institutions have been informed they face particular scrutiny.
But the FSA refuses to name and shame them and, despite threatening to batter the offenders, it will leave consumers unprotected.
Some of the lenders punished will be told to make amends to customers - but not all.
So it's up to you to take on the bank if you believe they sold you a duff policy or one you didn't need. Here's our guide...
The early findings PPI policies mainly belong to borrowers who have taken out a credit card, store card or personal loan, or bought something on the never-never such as furniture or a car.
It should offer peace of mind that repayments will be covered in times of crisis such as illness or unemployment.
But the FSA has found that more than two thirds of banks, finance companies and stores are failing to explain what it covers, how it works and what it costs.
An earlier investigation by the Office of Fair Trading found that advisers were encouraged to sell it as it offered high levels of commission and rarely paid out.
The City watchdog waded in to investigate the sales process.
Since it began its probe in January it has consistently found fault with the way customers were being sold PPI.
It has warned firms twice already to play fair. But on each occasion some firms have failed to heed the warning.
Rogue traders
While the FSA has found no evidence of widespread mis-selling of PPI, it did discover serious flaws.
These sales scams have left consumers thousands of pounds out of pocket - paying for expensive insurance they can never use.
But despite this probe being nine months down the line, the watchdog still found that two out of every three firms failed to treat customers fairly.
One in three failed to give customers basic information to make a decision about the product. This includes not being told that they are buying a single-premium policy, where the premiums are added to the loan and interest is paid on this amount.
And many policies sold were not right for the customers that bought them.
At least 14 firms have quit the protection racket already after failing to meet the City watchdog's demands.
One in 10 firms still failed to make it known that PPI was optional.
The worst offenders were found to be those organisations where single-premium polices were sold alongside loans, such as at many high street banks and building societies.
How much does it cost?
Loan insurance is not a bad thing. Sometimes you need that layer of protection in case things go wrong.
The problem is that many are paying an arm and a leg for a policy they will never use, never needed in the first place, or could have got a lot cheaper elsewhere.
Our chart over the page shows the current best and worst deals around at the moment.
It's shame on you Britannia, for having one of the most expensive policies at a time when the society is splashing out £5million of members' money promoting its fairness.
Chief executive Neville Richardson even launched the campaign by saying: "We have something unique to offer our customers when it comes to being honest and up front - and now we are starting to shout about it."
Yet, its PPI policy adds £69 a month to the cost of a £10,000 loan over five years. That's a whopping £4,100 extra.
For just £11 a month you can get a policy with independent providers Paymentcare.
This will cover £200 of repayments a month for five years.
And the cost of PPI makes many cheap loan rates suddenly become expensive.
For instance, while YourPersonalLoan.co.uk has the cheapest rate of 6.3 per cent, once you add its insurance repayments shoot up by £40 a month to £233.41.
By comparison the Leeds building society loan rate of 8.7 per cent looks dear.
But when you add in its PPI payments of just £24 a month it suddenly leaps to the top of the table. Monthly repayments are £229.
What you can do..
When you were sold a PPI policy you should be:
Told it is optional, where this is the case
Given clear product and cost information
Given help to understand what you can and cannot claim
Offered a refund if you cancel the policy If you were not told one of these things, then you were probably mis-sold.
As always your first port of call is the company that sold you the loan.
If it was mis-sold then you will be able to cancel the policy immediately at no cost.
You should also demand a refund of any premiums you have paid.
This is also the case if you were told you would not get a loan if you did not take the PPI.
Again, this is mis-selling and you are entitled to all your money back. If you have no joy with the company that sold you the loan then you can turn to the independent Financial Ombudsman Service.
It has received 2,145 complaints about PPI in the past year, almost double the number from the year before.
Around eight in every 10 cases it handles result in a pay-out for the consumer so it is definitely worth the effort.
YOUR MONEY: OPINION
The FSA is talking tough and threatening to hit banks in the pocket.
But how many times do they need to be warned.
Regulators should have acted by now.
By naming and shaming the repeat offenders customers will be able to steer clear of the bad guys.
Then, if they still don't play fair, punish them with hefty fines.