What is payment protection insurance (PPI)?
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You may have received a cold call or seen an advert about payment protection insurance, more commonly known as PPI. We’re here to discuss exactly what it is and how it impacts you.
Payment protection insurance (PPI)
PPI is a type of insurance that was sold by companies when taking out a loan. In the event a borrower can’t make a loan repayment due to being ill or out of work, they would be covered by the insurance.
However, the insurance product was sold to many who didn’t need it. This led to one of the biggest financial scandals ever, costing banks billions in compensation payouts.
Was my PPI mis-sold?
Your PPI was likely mis-sold if:
- The product was added to the loan without your knowledge
- You were self-employed, unemployed or working part time when the loan was provided
- A pre-existing medical condition was known to the loan provider
- The insurance policy didn’t cover the entire loan term
- Sales staff were unclear on what the product was
- An adviser made the product appear non-optional
The Plevin rule
A landmark ruling in the PPI timeline changed the way claims were handled by regulators. When Susan Plevin looked into her own claim, she discovered a large part of her PPI premium went to the broker as commission. 71.8% of the PPI payments Susan Plevin made were taken as commission by Paragon, credit broker LLP Processing Ltd and the provider of the PPI, Norwich Union.
Plevin argued that the level of commission and failure to disclose it constitutes an unfair relationship under the 1974 Consumer Credit Act.
In 2014, a Supreme Court Judge ruled in Plevin’s favour. The judge ruled that if a PPI seller failed to disclose to a customer that it had received a large commission from the product provider, the sale was unfair.
Unfair relationships
The Financial Conduct Authority (FCA) stated that more than fifty percent commission is unfair. This gives consumers fresh grounds for complaint even if their original PPI claim was overturned.
In the case of Nelmes vs Northern Rock Asset Management (NRAM), half of an arrangement fee was unknowingly paid to the broker as commission. Nelmes argued that the broker was hired to act in his best interests. However, the commission paid gave the broker incentive to breach that duty.
The Court of Appeal ruled that this secret commission amounted to an unfair relationship. The judge ordered that the commission paid plus interest should be returned to Nelmes by NRAM in order to rectify the unfairness.
PPI+
If you have taken out a loan or credit agreement that also had PPI added, you might be eligible to claim back your PPI plus compensation for any unfair commissions paid.
Our team of experts can advise on the next steps to take.
