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Payment protection insurance (PPI) has been flogged by banks and credit providers for years. It makes the industry an absolute fortune, but we can’t hold it against them because we the borrowers need to have it….don’t we? No, the fact is you don’t have to have PPI, yet thousands of us have been manipulated into buying it. You might not even know you’ve got it!

Here’s how you can uncover the scam and get your money back.

• What is payment protection insurance (PPI)?
• What exactly have the banks done wrong?
• How do I know if I’ve been affected?
• How can I get my money back?
• What action is being taken against the banks?
• Alternatives to PPI

What is Payment Protection Insurance (PPI)?

PPI was designed to help cover your monthly loan repayments if you were to become sick, injured in an accident or unemployed. If any of these things happened your income might take a considerable nose dive, which for most of us would cause major problems. This is where your PPI would come swooping into action. It would pay out a set amount of money for a set amount of time, helping to cover your monthly mortgage, loans, credit and store card repayments. So far, so good.

And that’s just it, the intentions of PPI are good but in the wrong, greedy hands it has often been mis-sold to people who neither need it, nor can afford it. Banks have been the main culprits, pushing PPI on customers trying to take out loans or credit cards. Why did they do it? Because it made them a serious amount of money. PPI companies pay the banks a lovely commission for every policy they sell so they have tried to push it wherever they could. At one point these sales were making the banks around £5billion a year!

Last year the Office of Fair Trading banned banks from selling PPI directly with loans, insisting that they give customers a seven day cooling off period to prevent banks and building societies pushing PPI on to customers when they applied for credit. However, this still means that hundreds of thousands of us have paid into these policies and are still paying…for nothing.

What exactly have the banks done wrong?

In their greedy bid to sell as much PPI as possible banks have often glossed over its limitations. PPI comes with a lot of pros and cons, and by failing to outline these to consumers the banks were setting them up for a fall. In the worst case scenarios consumers were sold PPI which they weren’t even eligible for (for example, self-employed people who wouldn’t be able to claim if they suddenly didn’t get enough work). So when it came to making a claim,  their insurance, which they were paying through the nose for, was invalid.

Trusting consumers were also often tricked into thinking they had to have PPI, and that without it they wouldn’t be allowed the loan. Rubbish! You don’t have to have PPI, and if you do want it you should always shop around for the best deal (banks, unsurprisingly, charge through the roof).

Even more shocking is that many consumers weren’t even aware they were buying it. Cleverly placed opt-out options and pre-ticked boxes in your loan agreement meant that unless you seriously studied the small print you’d be none the wiser that you had it (but your wallet certainly would).

Yet another way consumers were stitched up was with the interest rate of the insurance. Few were made aware of the exact amount they would be charged, or what would happen should they pay their loan off quicker than expected. In some cases consumers had paid off their loans, but were still expected to pay for the insurance!

So to summarise, the banks put their needs before ours and mis-sold PPI to thousands of their customers. Nice.

So how do I know if I’ve been affected?

Get out the paperwork from your original loan. If you can’t find it, contact your lender and request a copy. The terms of the agreement will help you to establish whether or not you were mis-sold PPI, and will be needed as evidence when making your reclaim.

Now ask yourself the following questions. We’ve put in brackets what your answer should be had the bank sold PPI to you properly:

• Was it made clear to me that PPI was optional? (YES)
• Was I fully aware that I was buying PPI? (YES)
• Was I told, or made to feel, that my loan application would be rejected should I not buy PPI? (NO)
• Was I pressurised into buying PPI by my bank? (NO)
• Was I already covered through work, my partner or another policy when I bought PPI? (NO)
• Was I made aware of all exclusions to the policy and how they would affect me? For example, was I made aware of the fact that I might not be covered for existing medical conditions? And were all restrictions relating to being self-employed, unemployed or retired made clear to me? (YES)
• Were all the policies terms and conditions explained to me with patience and in detail? (YES)
• Was I made to take out a single-premium policy to pay for the insurance? (i.e. was a lump sum amount added to the amount I was borrowing?) (NO)
• Was I made aware of PPI interest rates and how they would impact upon my loan? (YES)
• Was it made clear to me how long my insurance would last, and what would happen should I pay my loan off quicker than expected? (YES)

If any of your responses didn’t match up with ours, you’ve probably been mis-sold PPI and should read on to find out how to make a claim.

If all of your responses did match ours but you still feel uncomfortable about the way you were sold PPI, read on to find out who you should contact and how to go about contacting them.

Further factors to consider

To ensure that your claim has the best chance of success you should also consider these factors before progressing….

• If your insurance policy started in the last 6 years and you’ve got access to the original paperwork, you’re in with an excellent shot of reclaiming.
• If your insurance policy started longer ago than this, but you still have the original paperwork, you could still have a case.
• If your insurance policy is over 6 years old and you don’t have any of the original paperwork, contact your lender and request a copy. Be aware though that with a policy much older than 6 years, your chances of reclaiming might be weakened.
• If you’ve made a claim on the insurance your chances of reclaiming might be weakened. If this applies to you contact the FOS for advice on how to progress.

How can I get my money back?

Firstly, do not get conned into using one of those nasty little companies that phones people up telling them they can get you compensation…for a fee. Yes, they might be able to get you compensation, but they will charge you through the nose for doing something you could do quite easily, for nothing! Ignore them. They’re money-grabbers too. Just follow our step-by-step guide here:

Step 1. Fish out your original loan agreement. If you can’t find it contact your lender and request a copy. You’ll need it to check over the exact terms of your agreement, and to potentially use as evidence when making your case.

Step 2. Go to the online PPI resource section of the Financial Ombudsman Services (FOS) website, and fill in the consumer questionnaire which is located in the middle of the page. The FOS are an independent body whose job it is to settle complaints between consumers and businesses providing financial services. They designed this questionnaire specifically for people wanting to complain to their lenders about being mis-sold PPI.

Step 3. Once you’ve completed the questionnaire print it off and sign it. Keep a copy for your records and then post it to your lender. Then await your first rejection! When the rejection does come (and be warned, it probably will) store it somewhere safe as you’ll need it later on.

* If you’re one of the very lucky few who receive a positive reply, congratulations! But don’t be dazzled by what the lender first offers you, as it might be a lot less than you’re actually owed. The average refund on a single premium claim is around the £2000 mark, so don’t make do with the paltry £500 the bank is so ‘generously’ offering. If in doubt call the FOS on 0800 234 567. See more FOS contact details here.

Step 4. So you’ve tried playing it nice and you’ve been rejected. Now it’s time to do a bit of name dropping. Send another letter to your lender informing them that you’re not satisfied with their response. Tell them that you want a full refund of both the premiums and the interest that you’ve paid for them. You should also ask for the 8% statutory interest that a court would award you in these circumstances. Sound extravagant? It isn’t, it’s merely what you’re probably owed.

Now here’s the really important bit. Tell your lender that if they don’t meet these fair demands you will have no choice but to contact the Financial Ombudsman Services. If anyone’s going to get your money back it’s these guys, and the banks know it. The FOS rule an estimated 90% of mis-sold PPI claims in favour of the consumer.

Step 5. If, after trying all of the above, your lender is still not budging, it’s time to do what you threatened. Complain to the FOS who will look into both sides of the argument and settle the debate for you. If your claim is valid and genuine, your chances of getting back what you’re owed are good. You’re FOS complaint form can be found here.

Be warned! The FOS can only get involved if your lender was FSA regulated. If you purchased your PPI through a bank then you should be fine, but through anyone else you might have a problem. Contact the FOS or the FSA today to find out whether or not your lender was FSA regulated.

Importantly, though, persevere. Go into this knowing that you’re likely to get at least one rejection. Of course you are, the banks aren’t going to hand over your money without a little resistance. But remember, they’re banking on the fact that after one rejection you’ll be embarrassed into silence. Don’t let it happen!

What action is being taken against the banks?

In recent years banks have come under enormous fire regarding PPI. Some of them have resisted, but Lloyds Banking Group’s recent decision to stop selling PPI to customers in the process of taking out a loan, is a good indication of how the tide is finally turning.

Aside from the FOS, both the Financial Services Authority (FSA) and the Competition Commission are also on the case, and in the future we may well see a complete ban on PPI being sold by loan providers. PPI sellers have also been told to stop selling single premium policies, and thousands of previously rejected complaints are now under review.

Alternatives to PPI

The prospect of not being able to pay our bills is enough to keep most of us awake at night. We all want financial security, to know that if everything suddenly went wrong we wouldn’t lose our home and possessions. But PPI isn’t the only option. In fact there are lots of ways you can protect yourself against loss of income without taking out PPI. Here are a few options to consider:

• Set up a savings safety net

Create your own financial security by setting up a savings safety net. This means saving enough money to cover ALL your expenses (mortgage, utilities bills, food etc) for at least three months, but ideally six. So should your income suddenly come to a halt, you’d be financially covered for a decent amount of time. The best way to go about building your net is to open an easy access savings account. To find the best account for you, read our article on online and instant access savings accounts now.

• Take out mortgage payment protection insurance (MPPI)

If you’ve got a mortgage but are worried that you can’t afford to set up a savings safety net, have a read through our article on how to save when you don’t have any money.

If, after reading the article, you still don’t think you can save, consider getting mortgage payment protection insurance (MPPI). MPPI was designed to cover your mortgage repayments should illness, an accident or unemployment affect your income. As with all insurance policies there are factors to consider. For example, MPPI usually excludes any time-off you take for stress or back related problems, and after claiming you’ll usually have to wait around three months before you receive any money. To find the right MPPI for you visit our comparison service which is run by the excellent Moneyminder site. Just select the type of cover you need (mortgage payment protection), answer a few simple questions and they’ll suggest a policy to suit you. Do it now.

• Take out income protection insurance (ICI)

If you don’t have a mortgage but still can’t afford a savings safety net, seriously consider taking out ICI. ICI was designed to provide you with an income in the event of sickness or an accident. A good policy will pay out until you are ready to return to work. If you never return to work it should provide you with an income until you reach retirement age. But be warned, ICI doesn’t cover against unemployment and you’ll usually have to wait around three months before you start receiving any money. Try our income protection deal-finder, also powered by Moneyminder.

• Take out critical illness cover

No-one likes the thought of taking out this type of insurance, but if you ever became seriously ill you’d be thankful that you had it. Your critical illness cover would pay out a lump sum in the event of you getting any of the serious illnesses specified in the agreement (examples of conditions deemed serious include cancer, heart attacks, kidney failure and strokes). Thousands of employers receive critical insurance cover through their work, but if you don’t and are the main breadwinner in your family, it’s well worth considering. Again, don’t just go for the first one you see, compare all the products on the market with our critical illness deal finder here.

For more alternatives to PPI check out our article on the 7 best ways to protect your income.

Useful links:

• Income protection insurance (ICI)
• Mortgage payment protection insurance (MPPI)
• Critical illness cover
• The Financial Ombudsman
• The Financial Services Authority
• Competition Commission
• Online and instant access savings accounts
• How to save when you don’t have any money
• The 7 best ways to protect your income