Payment Protection Insurance (PPI) guide

Millions of customers claimed refunds totalling billions of pounds, with banks and other financial providers fined for their conduct.

It is no longer possible for customers to claim they were mis-sold PPI thanks to the August 2019 deadline for claims imposed by the Financial Conduct Authority (FCA).

Customers should beware of scam calls claiming PPI mis-selling compensation is still available.

Credit: Drozd Irina/Shutterstock.com

Can you still claim for PPI?

The Financial Conduct Authority (FCA) deadline for PPI claims passed in August 2019, following years of wrangling over whether there should be a deadline.

This means no more complaints can be made directly to banks about PPI and the Financial Ombudsman Service (FOS) will no longer consider claims connected to the mis-selling of PPI.

Although customers might have been able to plead that they had missed the deadline because of exceptional circumstances such as serious illness, that's unlikely to be successful this long after the deadline.

Some people who believe commission on their PPI policy to the person who sold it was unclear have gone another route and taken their bank or credit card provider to the small claims court with the help of a lawyer.

This is known as a Plevin claim based on the customer who first argued it successfully in court.

However, this isn't the same as a mis-sold PPI claim and is based on issues around commission that are more complicated than the typical PPI claims we saw up until August 2019.

One further route is available is available if the firm who advised us to take the policy has since failed.

Under those circumstances, a claim could still be made as the FCA deadline does not affect claims under the Financial Services Compensation Scheme (FSCS).

This is a rare one, however, and there's more information on how customers can go about making a claim in such circumstances on the FSCS website.

PPI scams

As PPI was such a well-publicised scandal with millions potentially owed compensation, an industry of cold calling emerged that resulted in customers receiving nuisance calls suggesting they were owed PPI compensation.

Some of these callers were genuinely touting for business for claims management companies, while others were scams designed to trick people out of their money.

With the deadline gone, these types of scams should largely have disappeared, although the usual guidance on avoiding telephone scams more generally still applies when dealing with any cold call.

If someone calls and suggests they can still make a claim for PPI, the best idea is to hang up the phone. Don't give them any personal information, even if they mention the Plevin case mentioned above.

On the off chance the Plevin case is relevant to our PPI policy, we should consult with a lawyer we have chosen ourselves.

We've got more information on stopping spam calls and texts, whether they're related to PPI or something else, in our dedicated guide.

What is Payment Protection Insurance (PPI)?

PPI is designed to protect borrowers' payments.

If the borrower loses their job, has to take maternity leave or otherwise suffers a loss of income so severe that they can't continue to make repayments on their financial commitment, the insurance promises to cover the payments until the policyholder gets back on their feet.

Do I need PPI?

The fact that PPI was mis-sold for so many years doesn't mean that, when it's sold well and appropriately, it can't offer consumers some useful protection.

However, PPI has become so infamous precisely because, over many years, it was sold neither well nor appropriately.

For example, many of those who ended up with PPI policies could never have claimed. Many policies stipulated that those who were self-employed couldn't claim, for example, yet millions paid out for the insurance in any case.

All in all, then, PPI can still be worthwhile but only when borrowers check the following:

• Policy small print: all insurance policies have eligibility requirements and exclusions that are well worth knowing about before signing up.
• Overlapping cover: in many cases, those with PPI would have been able to cover repayments for 12 months with workplace benefits, savings or another insurance policy they already held. Their PPI policies were superfluous
• Other providers: PPI was often sold alongside another product like a loan so people were unlikely to look at different providers to find the best deal before signing up. Looking at competitors is a good way to assess value for money.

The industry has been cleaned up and, while there are still complaints about PPI included in FOS data, it has a much lower rate of upheld complaints than many other financial products.

PPI mis-selling: a short history

PPI grew into the biggest personal finance story of the last fifteen years through a groundswell of consumer complaints that slowly turned into a torrent that has cost the UK's biggest banks millions of pounds.

Consumer groups started to raise concerns about the product as early as 1998, in much the same way that we talk about products that offer payment in case of ID theft now.

However, solid action wasn't taken until 2005 when the Financial Service Authority (who became the FCA in 2013) took over regulation of the general insurance market and issued their first report on mis-selling which concluded that, "the sale of PPI poses a high risk to our consumer protection objective."

In the same year, Citizens Advice issued a supercomplaint about PPI to the Office of Fair Trading (OFT).

That complaint included evidence of:

• Excessively high prices.
• Only partial protection, with many exclusions which prevent many seemingly reasonable claims.
• Mis-selling, including high pressures sales tactics.
• A slow and often unfair claims process when consumers were eligible to claim.

Opposition to PPI was beginning to grow. In September 2006 through to January 2008, fines for PPI mis-selling were levied against some smaller financial providers by the FSA.

In January 2009, a year after the OFT handed its investigation over to them, the Competition Commission recommended that sales of PPI be banned alongside lending products such as credit cards and loans.

Barclays, with the support of Lloyds Banking Group, took the Competition Commission ruling to court.

In May 2010, the Competition Commission won out against Barclays' appeal and could stop the sale of PPI at point of sale.

The rules weren't actually implemented until October 2011, however, so although some banks stopped PPI sales in any case the real PPI story became the Financial Services Authority (FSA).

In August 2010, the FSA published its PPI consultation paper which recommended that banks who had engaged in mis-selling should compensate all the customers who had been sold products using the same methods.

The British Banking Association (BBA), a trade body for all UK banks, appealed against the FSA rules by seeking a judicial review to have them annulled or curtailed.

Meanwhile, consumer groups were continuing to encourage millions of people to claim for PPI premiums, which often added up to thousands of pounds over the course of the borrowing period.

By May 2010, 30% of all cases coming in to the Financial Ombudsman Service - the body which adjudicates when a consumer doesn't accept how a bank internally handles his or her complaint - concerned PPI. This was the largest complaints group by far for any single product.

2011 breakthrough

The BBA's decision to take the FSA decision to a judicial review stopped the reclaiming process in its tracks: every High Street bank except Santander stopped processing PPI claims.

The real breakthrough for consumers came in April 2011, then, when the banks lost their PPI case and the freeze on claims ended. A month later, the BBA confirmed that they wouldn't take the decision to appeal.

Once that happened, the floodgates for claims were opened: banks apologised and started working through the backlog of complaints, much to the relief of the FOS.

However, in October 2011 banks admitted they were falling behind on refunds and these problems persisted when the FCA launched their publicity campaign to get more people to claim ahead of the August 2019 deadline.

In addition, though providers were forced to make billions of pounds in repayments, some of the poor practices that typified the PPI scandal were repeated in areas such as ID theft protection - more on this below.

Fines and compensation for PPI mis-selling

Many big names received fines during the lengthy PPI scandal, as well as some other firms who might not be as famous but played a pivotal role in the progress of the scandal

Fines evolved from being related to mis-selling itself through to handling of the complaints that were customer through.

For example, the huge £117 million fine handed to Lloyds Banking Group in 2015 was due to them dismissing 1.2 million complaints out of hand, with many wrongly dismissed.

Banks and other providers were forced to set aside billions for fines along with compensation for PPI claims and the cost of dealing with those claims.

The FCA kept track of the refunds and compensation paid to PPI customers from 23 firms that made up around 95% of complaints.

Here's the approximate year-by-year breakdown from 2011 to 2019:

So, between those 23 firms, around £38.3 billion was paid in compensation and refunds to customers.

That makes PPI the biggest consumer scandal of recent years, and the Public Accounts Committee (PAC) warned in 2016 that mis-selling must be addressed and prevented in the future.

Other mis-selling

Finally, as we noted above, even in the wake of the PPI crisis, some PPI-like products remain.

These deals are like PPI in that they also often sold alongside borrowing and also potentially difficult to claim on or otherwise unsuitable for the consumers who purchase them.

In November 2011, the FSA issued a warning to firms about such products and said that it would take cases of mis-selling very seriously.

However, many consumer groups and other interested parties continue to contend that financial providers are following the letter, rather than the spirit, of such guidelines.

Let's look at a couple of examples.

Repayment Option Plans (ROP)

It was revealed back in 2011 that Vanquis makes a large proportion of its profits through selling Repayment Option Plans (ROP), a good example of the then new PPI-style product.

Like PPI, ROP policies required a single monthly repayment, often as a proportion of the amount borrowed, and claimed to offer borrowers protection if they suffer financial difficulty through a change in circumstances.

Unlike PPI, however, the cover took the form of either a repayment freeze until the end of the difficulties or a payment holiday so that cardholders could skip some repayments without penalty.

In 2018, Vanquis paid 1.2 million customers around £169 million in refunds for mis-selling and a fine of £1.9 million was also levied by the FCA.

CPP's ID theft insurance

Also walking in PPI's footsteps were a firm called CPP. Mis-selling of their ID theft insurance, in partnership with some of the UK's biggest banks, got the company fined and ordered to pay compensation to customers.

The products were sold poorly, the FSA said. Salespeople frequently either overstated the risk of ID theft or outright lied about what the products would cover.

Under a redress deal, the company had to pay compensation to customers they dealt with directly - see more on the initial deal here. In addition, banks that sold CPP products alongside their own - for example, by putting customers through to a CPP salesperson when they call customer services - also had to compensate consumers that were mis-sold.

As we reported at the time, seven million former CPP customers were able to claim compensation from February to the end of August 2014. Later, the FCA reported that, by March 2015, the scheme administrators had "paid £451m of compensation to 2.37 million claimants, an average of £190 per claim".

The scheme showed that regulators have learnt from PPI: all CPP customers were entitled to claim and the whole process was designed to end by a set date, much more organised than what was initially seen with PPI.

Yet the moral of all of this remains the same: despite all the years that have elapsed since the PPI scandal first broke, consumers still shouldn't let their guard down.

Summary: Major consumer scandal

There's no doubt that PPI was one of the biggest consumer scandals of recent decades, with banks and other financial providers paying billions to correct their mistakes.

Many of us claimed back our mis-sold PPI before August 2019, and we're unlikely to fall into the limited categories of people who can still make some sort of claim.

Even so, the PPI scandal can serve as a warning for customers to be aware that financial providers may push us towards products that are not necessarily right for us.

Often, this doesn't cross the line into mis-selling. As we have seen with packaged bank accounts, complaints are not upheld simply because a customer doesn't make use of the product.

However, we have a personal responsibility to check that the services we're signing up for are going to be relevant to us. Perhaps the lasting legacy of the PPI scandal is that we're all more suspicious of add-ons and extras - and we've learned we should usually say no to them.