PPI sales practices
The British press, Citizens Advice Bureau and other organisations can be congratulated in terms of exposing how PPI was mis-sold to customers. Collectively they have been instrumental in detailing malpractice within this area of financial services.
For decades banks and other firms have sold PPI without taking into account an individual’s personal circumstances. It appears the main impetus was not to ensure borrowers were properly protected but to capitalise on the substantial commissions being offered for selling the policies. This was not conducive to treating customers fairly. For decades PPI sales generated enormous commissions for firms promoting them inevitably increasing their profitability.
Financial commentators are still describing PPI as ‘the biggest mis-selling scandal in financial services history.’ The Financial Ombudsman Service website explains that they expect it to take years, not months, to sort out all the issues involved. Perhaps as much as £50 billion worth of PPI policies could have been sold over the last fifteen years or so – and by hundreds of different financial businesses.
Whilst millions of people have already complained about PPI mis-selling, and received a share of £17.3 billion compensation, there are many more millions of customers who have yet to make a claim. A total of £375.6m was paid in October 2014, which is the latest figure issued by the Financial Conduct Authority and available on their website.
PPI sales practices – cause for concern
Many firms who sold PPI policies have been strongly criticised. The tactics used to persuade consumers to buy PPI did not conform to treating customers fairly. For example, borrowers were told their loan application would be rejected without a policy, or that PPI was a mandatory condition. Some firms did not even explain that PPI was being added or completed forms without a customer’s knowledge.
Some borrowers were put in a position where they felt ‘pressurised’ to take out PPI, with those facing financial hardship being particularly vulnerable. Lenders rarely told customers that PPI was available on a stand-alone basis or that they could be less expensive. For some customers, PPI policies offered in the open market could be far more suitable, not merely in terms of cost but in the extent of eventualities they covered.
PPI sales practices – banks and credit companies promoted PPI in strong terms
Lenders were promoting the benefits of PPI in glowing terms thus it is not surprising that customers thought it wise to accept the insurance cover being offered. However, if you could not make a claim, due to an exclusion or limitation, then your premiums were being wasted. Moreover, PPI arrangements sold in conjunction with loans supplied by many lenders were considerably more expensive than those available in the wider market place. Overall, customers were being offered over-priced policies that could be considered substandard compared to stand-alone arrangements.
It is also fair to say that, during the sales process, there was insufficient explanation of the underwriting of policies. The general consensus is that policyholders were left to check if the insurance was suitable for their own circumstances and needs. Leaving customers to read and fully understand the small print, after they had received advice, cannot be considered to be treating them fairly.