Fraudulent PPI claims soar

Posted in 'Banking' by Arron Dickens

22 May 2012

The BBC is today highlighting the vexed problem of the number of fraudulent Payment Protection Insurance (PPI) claims - reporting consumer 'frenzy' to get a piece of the billions of pounds currently being paid in compensation for mis-sold PPI. BBC Breakfast also reports today that the Financial Services Authority (FSA) is receiving over 1,000 complaints per day about PPI claim handling.

The top five lenders in the UK have now set aside over £6bn to cover expected payouts in compensation for mis-sold PPI claims and this figure could easily rise further in the coming months and years.

The average claim in the UK for mis-sold PPI is around £3,500 according to the FSA. One woman has even managed to reclaim a staggering £50,000 from several credit card companies including MBNA and HSBC. The claim was so high due to the 17 years of PPI paid on one of her cards, which was repaid along with interest for the entire period.

It is claimed that there were over 20 million PPI policies sold in the UK up until May 2008 and around 40% of policy holders were not aware that they had been sold this form of insurance on their credit agreements. One major reason for this cited is that the insurance is usually sold alongside the original agreement and therefore many consumers simply did not notice this ‘optional extra’ included in the agreement.

The woman (who wishes to remain anonymous) told BBC Radio 4 Moneybox, “I got the impression that the application was more likely to be accepted if I took the insurance, and I think it was implied”. She also managed to claim this money without utilising the services of a PPI claim management company, and therefore was able to keep all of the compensation awarded.

If you believe you may have been mis-sold PPI then take a look at the following step by step guide:

1. Do you have it?

You may not even know you have bought it. It may be called loan/credit protection or accident, sickness & unemployment cover. It was sold most with personal loans, mortgages and credit cards. You may have unknowingly chosen this option, or simply not opted out.

2. Can you claim compensation?

If you have an active credit agreement or one closed within the last 6 years, and it has some form of PPI included then you may be able to claim. Your credit file will contain any credit agreements closed within the last 6 years that has been reported by your lenders to the UK credit reference agencies. At Checkmyfile we also include contact details for the majority of lenders and is a great place to start if you are unsure what credit you have had.

3. How was the PPI sold?

Many policies were sold without the customer knowing they were offered the plan. Or even more sneakily the lender may have told you there was no option if you wanted the credit. In these cases there is almost certainly a good chance your PPI was illegally sold and compensation would be very likely. Even if the PPI was properly sold, there are still reasons why compensation claim are often successful.

4. Could you even have claimed for PPI?

There are many exclusions in any insurance policy (e.g. racing your car around the Nurburgring is generally frowned upon by car insurance firms) and PPI policies are no different. Often however these exclusions were not made clear and the seller of the insurance often doesn't ask important questions to establish your suitability.

Unemployment Protection -

All of the following are usually excluded from being able to claim on PPI policies:

If you fall into any of those categories (or did at the start of your loan) then you should not have been sold PPI.

If the lender did not ask if these exclusions might apply (either at the start or if you were planning on retirement or studying during the loan duration for example) then you may still be able to claim on the basis that it was not properly sold.

Accident & Sickness Protection -

5. What is the next step?

We would always recommend contacting the original lender with any dispute that you have, the same goes for a PPI complaint. Make sure to include all details about the account that you have and also full details about why you are making a complaint. Often if the policy was mis-sold based on the reasons above, lenders may simply offer some form of compensation straight away. If the lender rejects your complaint then the next step would be to obtain a 'letter of deadlock' from the company. Simply write to them and inform them that your complaint was not resolved and you feel you have no choice but to take your complaint to the Financial Ombudsman.

You can then contact the Financial Ombudsman service who will investigate the matter and make a decision about whether or not the PPI you were sold was valid. You can contact them and fill out all the relevant details regarding your complaint here.

Please remember you do not need to use a 'Claim Management Company' or any other third party. They will charge you a substantial proportion of the compensation awarded (around 20-30%). If the individual in the above article did this, she would have handed up to £15,000 to one of these companies, simply for sending a couple of letters.

Arron Dickens is a Credit Analyst at Checkmyfile and has a Bachelor of Arts degree in Business Administration. He can be contacted at arron.dickens@checkmyfile.com.