Payment Protection Insurance (PPI)

Below is the link to the interview I did on Newstalk this morning with Ian Guider, (click the play button to the left of the picture, its about 15 mins in).

What is PPI insurance?
When you take out a credit card, personal loan or a mortgage with a financial institution you can take out PPI or Payment protection insurance. The idea behind it is that it kicks in and makes your loan repayments if you become ill, are unable to work due to an accident, or are made redundant.

It’s important it is not confused with Mortgage protection which clears your mortgage if you die, or income protection which pays you a % of your wage if your become sick.

What is the problem with PPI insurance?

I have never been a big fan of the product. Firstly unlike income protection which pays you a percentage of your wage until you return to work or you retire whichever happens first PPI will make the loan repayment for a specified period only, sometimes this period is as short as 12 months.
But where the big problem arises is the way in which these policies were sold. The banks, who sold over 80% of the 350,000 of these types of policies between 2007 and 2011, are said to have made more money off PPI products than they did off the loans they were trying to protect.

This is suspected to be the reason why so many of these policies have been considered to have been mis-sold and there certainly has been evidence of mis-selling. Irish Banks paid out €25 million last year to people affected and based on figures coming from the financial ombudsmans office there is more to come.

1 in 5 complaints received by the financial services ombudsman in the last six months of last year related to PPI insurance and 80% of those complaints related to the mis-selling of these policies. This is a 150% increase on the same period the previous year and the previous year was 216% up on the year before that.

If we look across the water at the UK, where they are a little further down the road with their complaints you would have to imagine there is more to be paid out by Irish Institutions. I know the UK has a larger population but for example Lloyds TSB set aside €1.8 billion in the last quarter of 2013 for potential PPI Claims.

So why is PPI in the news this week?

PPI has got a lot of coverage in recent times because the central bank has forced the institutions to review the way in which policies were sold, they have highlighted the areas such as whether or not the policy was suitable for the clients it was sold to, whether exclusions were explained properly and the fact that most policies won’t cover people who work part time or are self employed. The process has been ongoing and many people would have received letters from their banks whilst the review was being carried out.

However later this week the Financial Services ombudsman will reveal that he couldn’t investigate about 1000 PPI complaint cases last year because they are not within his offices remit. This is due to the fact that he cannot investigate a complaint which relates to something that occurred more than 6 years ago.

So he can’t go back before 2008. This when combined with the fact that the central bank review only goes back as far as July 2007 means that potentially the banks could be let off the hook for millions in compensation.

I can understand why the central bank is only going back as far as 2007. This is because this is when the consumer protection code was put into force. I have been a regulated entity since long before 2007 so I would be slow to say that the central bank didn’t have powers before 2007 but the consumer protection code did give the central bank real teeth.
However the legislation which only allows the Ombudsman office to go back 6 years to me doesn’t make sense. It if we look at other jurisdictions the rule is different, a consumer has 2 years from the time you realise there was a problem to make your complaint. The ombudsman office will only work within current policy but has said his office would have “no objection” to a rule change.

Where can people get more info?

There are companies out there who specialise in looking after your claim, however beware the fees can be very heavy. I’d suggest initially making enquiries to the institution, who sold you the plan, make a formal complaint if necessary. After you go through their complaint process if you are not satisfied bring your complaint to the financial services ombudsman who will investigate it fully. But be prepared his office is busy.

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As always if you have any queries please do not hesitate to contact Eoin by emailing eoin@prosperous.ie or calling 045854716

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