PPI Rip Off
About Payment Protection Insurance (PPI)
Payment Protection Insurance, also known as PPI, is a type of insurance policy that is designed to cover payments on a loan or overdraft if the person who takes out insurance
is unable to cover the repayments due to particular circumstances depending on the policy type. Typically, cover is provided to cover against redundancy and sometimes cover
is provided against sickness.
If the specific conditions of the insurance (such as redundancy or sickness) are met, a PPI policy pays for the loan repayments for up to a maximum period that was selected
when the policy was purchased. A typical policy will make payments for a period of up to 12 months or until the policy holder is able to resume work because he/she finds
a new job or is able to work again after a period of sickness. If the policy holder is unable to return to work after the maximum payout period of the PPI policy, he/she
will have to find an alternate means of making the payments.
PPI can be a Rip Off
Although PPI valuable peace of mind cover for many customers, there have numerous problems in this sector over the past few years.
The problems have centred around the sale of PPI with loans and mortgages without the customer being made fully aware that the PPI cover was optional.
PPI is available from a variety of providers and in common with many other financial products, it can pay to shop around before committing to a particular policy.
In speech on 1st July 2009, Jon Pain, Managing Director, Retail Markets, FSA Association of Finance Brokers said:
The poor sales practices we have identified increase the risk of unacceptable outcomes for consumers purchasing PPI policies.
We have found instances where a customer may be ineligible to make a claim on a policy they purchased and where they were not provided with adequate
information to help them understand that, in single premium sales, they would be paying interest on their extra borrowing. Firms must do considerably
better in order to ensure that consumers are not poorly treated.
The Financial Services Authority (FSA) has how fined 20 companies for miss
selling PPI. The biggest fine to date was against Alliance and Leicester who were fined £7 million in October 2008.
On 7th October 2008, the FSA announced a £7 million fine against Alliance & Leicester for PPI failings
For three years from January 2005 to December 2007 A&L sold approximately 210,000 PPI policies to customers seeking a personal loan at an average price of £1,265, but there was a general failure by advisers to give customers details of the cost of PPI. In addition A&L sought to find reasons to sell PPI without properly considering what customers needed.
A&L did not make it sufficiently clear that PPI was optional and it trained its staff to put pressure on customers where they queried the inclusion of PPI in their quotation or challenged advisers’ recommendations.
These failings resulted in unacceptable levels of non-compliant sales and a high risk of unsuitable sales over the three year period.
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