Lenders have charged customers billions for insurance they can't use, or wouldn't have bought if they'd been treated fairly. This insurance is the infamous payment protection insurance (PPI), which protects your mortgage, loan or credit-card repayments for 12-24 months in the event of accident, illness or unemployment.
There's a reason this happened, and it's greed. Greed causes invidious financial incentives throughout the financial-services industry, which cause staff and directors to do things that are in their interests, but no one else's.
As we highlighted in FSA clamps down on ‘flawed’ bank bonus schemes Martin Wheatley, the head of the incoming Financial Conduct Authority – which is what part of the outgoing Financial Services Authority will become – says he'll tackle incentives such as payments to staff based on product sales, which encourage mis-selling.
The Financial Ombudsman Service – which can force companies to compensate those who've been treated unfairly – says it gets up to 1,500 complaints a day about this insurance.
Successful complaints usually involve the lender not making important exclusions clear or, if the product was recommended (aka sold) to the customer, rather than merely demonstrated, the recommendation has been inappropriate for the customer's needs. Finally, a hard sell is often to blame.
Here are typical stories of complaints the Ombudsman is getting, and how it's ruling on them.
No compensation if exclusions are explained
Mrs C complained to her lender, and then the Ombudsman, that the lender hadn't told her she couldn't claim if she was unable to work due to her asthma.
The Ombudsman listened to a recording of the initial phone conversation between Mrs C and the lender. The call handler explained claims related to Mrs C's asthma would be excluded.
Since the bank actually recommended the insurance to Mrs C, the Ombudsman considered whether it should have done so. It concluded that the other potential benefits of the policy meant it was a reasonable recommendation.
It rejected Mrs C's complaint.
The hard sell
Mr P complained that he bought PPI because of a hard sell. The credit card company claimed its representative provided “information” with no advice or selling.
The Ombudsman got a copy of the script the call handler used, which mentioned using “objection handling guidance” several times to overcome objections. The lender couldn't provide a copy of this guidance.
Since Mr P had good benefits from his employer if he became unable to work, and the benefits of the insurance policy were relatively small, the Ombudsman thought it unlikely that Mr P would have bought this policy without pressure.
The Ombudsman ordered the card company to compensate him.
Self-employed struggle to claim
Mr J, a self-employed dental technical, was encouraged to take out PPI with a new loan. He later learned it could be difficult to claim.
The lender told him it had been a suitable recommendation at the time. He wasn't convinced, so he complained to the Ombudsman.
The Ombudsman saw that the policy required self-employed people to “permanently cease trading”. It considered it unlikely that Mr J would permanently be unable to work as a dental technician, which is very different to temporary unemployment.
It also listened to the phone conversation and found this had not been explained. Literature explaining this was sent to Mr J after he had taken out the policy only.
Considering the onerous terms and that the lender had recommended the policy, the Ombudsman upheld Mr J's complaint.
Poor cancellation terms
Some people are complaining about older-style PPI policies in the form of expensive, one-off premiums that were added to the start of a loan, with interest charged on it.
Mr B complained that, when he came to cancel such a policy, he wasn't given a pro-rata refund.
The Ombudsman saw that the loan agreement set out clearly the cost of the loan with and without the insurance, as well as a clear table showing how a refund would be calculated.
[SPOTLIGHT]It also listened to the phone conversation, because the lender had recommended the policy to Mr B, rather than just informed him about it. The adviser took enough information from Mr B and advised him clearly. Hence, the ombudsman rejected Mr B's complaint.
Riddled with exclusions
Miss N went to her bank to take out a mortgage and took PPI to cover the repayments in case of accident, illness or unemployment.
She lost her job and claimed on the policy, but her claim was rejected because she didn't live in the mortgaged property. Miss N complained to the Ombudsman.
The Ombudsman accepted that the policy hadn't been specifically recommended to Miss N, but found that the documentation didn't make this exclusion clear enough. It also took the view that the salesperson who arranged the mortgage must have learned during the discussion that she didn't intend to live at the property herself.
The Ombudsman believed Miss N hadn't been given enough information, and ordered the bank to put things right.
Taking advantage of the seriously indebted
Mrs R talked to her bank about her financial difficulties. It recommended a consolidation loan with PPI. Three months into it, she realised the insurance was making her situation worse.
The PPI was paid up front and added to the loan, creating an additional £4,000 of debt.
The Ombudsman decided it was likely the bank knew Mrs R's financial situation and should have taken this into account before adding £4,000 to her debts. The Ombudsman wasn't satisfied the bank had given Mrs R a clear explanation of the costs.
The bank was ordered to put things right.
Learn how to make a free complaint to the Ombudsman in How to claim your PPI compensation.
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