Author Mark Richards

Some 64 million Payment Protection Insurance policies were sold in the UK – many of them wrongly. The Financial Conduct Authority has recently suggested that the majority of people entitled to make a claim for compensation have not yet done so – but you need to act quickly, as the FCA has now imposed a deadline on claims.

So how many cold calls have you had about PPI – or Payment Protection Insurance as it is more properly known?

A hundred? Two hundred? If you are like me you will have lost count – and quite possibly stopped answering the phone to any number you do not recognise.

But now it appears that the flood of calls – and not even a Bank Holiday can stop them – will finally come to an end.

The Financial Conduct Authority (FCA) has set a deadline: if you believe you have been mis-sold Payment Protection Insurance then you have until August 29th, 2019 to make a claim – two years from now.

What was Payment Protection Insurance?

Payment Protection Insurance was designed to run alongside a loan or credit card and do exactly what the name suggested – protect the repayments due under the terms of the agreement. It has now become the UK’s biggest miss-selling scandal. In total, some 64 million policies were sold – largely between 1990 and 2010 – to people who did not want or need PPI, or who could never make a claim.

How did it work?

Typically protection was given against accident, illness or unemployment, so if someone was injured in an accident, had an illness that kept them off work for a long period of time, or was made redundant then the PPI policy could be claimed on, typically after 3 or 6 months. It would then meet the loan repayments or the repayments due on your credit card. ‘So you will have complete peace of mind, Mr Prospect, knowing that your loan or credit card can never fall into arrears, no matter what happens to you. For just an extra £5.50 a month. How does that sound?’

The implication, of course, was that if you did not take out PPI then the bank – exposed to the cataclysmic risk that you could be ill or made redundant – would be likely to look on your loan application rather less favourably…

‘That sounds fine. Where do I sign?’

Why was it mis-sold?

PPI was mis-sold for several reasons. Perhaps the easiest way to explain is to give a couple of examples. Let us take the case of a nurse, working for the NHS. How likely was the nurse to be made redundant? The chances were negligible. Supposing she was ill though, or in an accident? Again, PPI was not really necessary: because she worked for the NHS she would have received full pay for six or 12 months in the event of a long-term condition resulting from the illness or from an accident. And if the condition was so serious that was she still off work after say, 12 months then the realistic option was that she would retire early on ill-health grounds with a lump sum and a pension – almost certainly allowing her to pay off the loan or credit card.

Alternatively, let us look at a self-employed plumber. Yes, he could be injured in an accident or have a long-term illness: but he could not be made redundant. A self-employed person simply cannot make themselves redundant.

In short, the banks were selling people protection against risks that were very, very unlikely to happen – or which could never happen.

Payment Protection Insurance

How big is the problem?

Huge. Enormous. Choose your own adjective. So far the banks have paid out £27bn in compensation for PPI miss-selling and have set aside a total of £37bn – and yet the suggestion is that most people who were mis-sold PPI have still to claim.

But £27bn is just a number: let me put it in some sort of context for you. Depending on its size, new hospitals cost between £500m and £2bn to build – so the PPI bill to date is equal to 13 new hospitals for the UK.

In very round figures the NHS employs around 300,000 nurses, midwives and health visitors: let us assume they are all paid £25,000 a year. That gives an annual salary bill of £7.5bn – so for what the banks have paid out in PPI compensation, they could have paid the salaries of every nurse, midwife and health visitor in the UK for four years.

Finally, the market capitalisation of Manchester United, according to Forbes’ valuation of the world’s leading football clubs, is $3.3bn – equal to £2.55bn, or around one-tenth of the PPI miss-selling bill. So let us put this simply: for what the banks have paid in compensation you could buy every team in the Premier League and still have change left over to buy yourself a pie and a Bovril at home time. For the rest of your life…

What is the FCA doing about the problem?

They are doing what any government department would do – spending your money. They are launching a £42m awareness campaign featuring the model head and the voice of Arnold Schwarzenegger – yes, that one – to make people aware of PPI and the two-year deadline. If the FCA is correct and the majority of people entitled to claim still have not claimed, then that two-year deadline will create an avalanche of claims.

Won’t the two-year deadline just make the ‘nuisance’ problem worse?

Sadly, the answer is ‘yes.’ Phone calls, texts and adverts are likely to increase as the PPI claims companies try to do as much business as possible before August 2019 – and as they ‘piggyback’ on Arnie.

What should I do if I think I can make a claim?

What you should not do is say ‘yes’ to the first PPI claims company to ring you after you have read this article. There is more information on the FCA website, as well as on sites like Which? and MoneySavingExpert: those sites may also have claims templates. The FCA also has Freephone line on 0800 101 8800. The other thing you will need to do is find all the information you can on any relevant loan or credit card – and no, that is not going to be easy, especially if you are going back to the early 1990s.

…And I know exactly how you feel. I once had an Egg credit card. Did I have PPI with it? I have no idea. And paperwork? Do me a favour: we have moved house twice. But then again, the might owe me thousands…