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By Jeremy Gates
Banks and credit-card firms made billions by mis-selling payment protection insurance to customers, but thousands of households have now got a better chance of getting a compensation cheque.
PPI was sold with mortgages, credit cards, personal loans, cars bought with finance deals and larger white goods. Many bought it without realising it, and may have no idea now that they could claim.
Britain's biggest claims specialist, Cartel Client Review, is handling around 15,000 compensation claims for PPI.
"We reckon that around 30-40 million policies have been sold," says its director Carl Wright.
"Everybody should get their PPI policy checked, preferably free of charge, to see if a claim is possible."
At its peak, PPI earned more than £5 billion a year for the finance industry on seven million policies sold - with perhaps £4b of that pure profit, mostly for big high-street banks subsequently accused of running a "protection racket".
A Competition Commission report in June 2008 claimed that the 12 largest PPI providers enjoyed a return on equity of 490%. Alliance & Leicester was fined £7 million for "serious failings" in PPI sales.
Those who bought PPI and redeemed it before 2005 have little chance of making a successful claim now. But on policies taken out and redeemed since 2005, chances of a payout have recently risen.
Firstly, the Government's City watchdog, the Financial Services Authority (FSA), told providers of Mortgage Payment Protection Insurance (MPPI) to refund about one million customers and reinstate their original levels of cover.
Consumer champion Which? thinks the ruling could see MPPI policy holders collecting automatic settlements totalling £60m. Usually sold as a single premium, MPPI is designed to cover mortgage repayments against redundancy and sickness.
"We're pleased the FSA acted against firms who've effectively been selling people umbrellas, then trying to take them away at the first sign of rain by charging more for a poorer quality cover at a moment when household budgets are under pressure," says Lucy Widenka, personal finance campaigner at Which?
The FSA has told MPPI providers to contact customers who got a raw deal. Widenka says anybody who thinks they have a claim should contact the provider if they hear nothing for a few months.
But MPPI is only a small part of the total PPI market, which grew up around loans and credit cards, and was often sold as a single premium policy to protect loan repayments in the event of redundancy, sickness or accidental injury.
Lump-sum premium for this cover, added to the loan at the start, could run into thousands - and it was often sold to people with little chance of making a successful claim if they hit trouble. On £5,000 loans, the premium could run to four figures.
"Some customers paid interest on the lump-sum premium for seven years, while the loan itself might have been fully repaid after five years," says Widenka.
In other cases, accident and sickness cover was sold to people with pre-existing medical conditions, which made a successful claim impossible. Others would have been unable to claim because they are retired or unemployed.
PPI policies could be expensive to cancel, too.
Since that blast from the Competition Commission, the FSA has squeezed PPI providers to give better value for money.
Earlier this year, it banned providers of unsecured loans from selling single-premium PPI policies at the same time.
New guidance by the end of 2009 will ensure PPI complaints are handled properly and redressed fairly, while a new rule is forcing firms to reopen 185,000 previously rejected about policies sold with unsecured loans since July 2007.
"This is the last chance for the industry to show that it can act fairly, consistently and in the best interests of consumers on PPI," says FSA director Jon Pain.
"All firms operating in the sector should take note and, where necessary, get their house in order. Where we find questionable practices in sales or complaint handling, firms can expect that we will take action."
If widespread evidence of mis-selling emerges, providers might have to reopen cases back to 2005, when the FSA took on regulation of general insurance.
The crackdown vindicates a long-running campaign by Simon Burgess of British Insurance, an independent broker who sells PPI at much lower prices than banks and credit-card companies.
"If PPI policies sold over the last five years are looked at in detail, compensation could hit £10 billion," he says.
"The FSA has been doing a thorough job, and this is potentially a bigger case of mis-selling than endowments, where compensation totalled about £2.5b."
Many consumers pursue PPI complaints by using template letters published on the Which? site, and on moneysavingexpert.com, run by Martyn Lewis.
Lazier claimants might hand their file to a specialist claim company to pursue a settlement on a 'no win, no fee' basis. Cartel Client Review takes 30% of any eventual settlement, Brunel Franklin 25%.
In choosing a claims specialist, consumers should check that the company is on the list of firms regulated by the Ministry of Justice. And they should avoid upfront fees running into hundreds of pounds, with no eventual guarantee of success.
There is little doubt that many who could claim will never actually get around to it.
"Around 35 million policies are in existence with almost every household affected, on average. At the moment the number of claims is the tip of the iceberg, as consumer awareness is the main problem," says Brunel Franklin managing director Sally Bowyer.
"People should dig out loan agreements and any other agreements where credit was purchased for cars, electrical equipment, holidays, debt consolidation and then check the small print.
"Even credit and store cards may be loaded with expensive PPI you were unaware you had. If you genuinely didn't understand the product or weren't aware of what was being added to your loan or credit card, you may be entitled to claim."
Wright argues that a recent test case has produced new grounds to substantiate claims.
"The vast majority of PPI products failed to disclose how much commission would be paid and to whom, and I believe this provides the basis for a claim which is probably stronger than simple mis-selling," he says.
"I believe this view was upheld by a landmark ruling in Newcastle small-claims court in September, which ensured that our client had PPI premiums returned with interest, with the court deciding that £8,000 debts on a credit card should be written off because the regulated credit agreement was legally unenforceable."
Wright believes that a "Sword of Damocles" hangs over PPI providers - his view will be tested as other cases go before the courts.
Despite the growing scandal, Simon Burgess at British Insurance insists that PPI remains an important defence for millions of households, particularly as the risk of unemployment increases.
The vital thing is to pay the right price, to get the level of protection which you need, and to be sure that you will eligible to claim to cover regular payments if the worst hits your family.
:: Information: Specialist PPI providers include British Insurance (08450 175178 and www.britishinsurance.com) and Paymentcare (0845 402 4088 and www.paymentcare.co.uk).
Specialist claims firms handling PPI claims include Brunel Franklin (0800 051 5451 and www.brunelfranklin.com); Cartel Client Review (0845 659 6000 and www.cartelclientreview.com).
FSA Consumer helpline: 0300 500 5000 and www.fsa.gov.uk.
Poundnotes
:: With London's FTSE-100 of leading shares hovering around 5200, a 31% surge in six months since March, Nick Raynor at the Share Centre thinks it might be time to take stock. The biggest winners for investors are Vedanta (up 194%), Barclays (up 138%) and Rentokil (up 120%), while his biggest losers include United Utilities (down 9.7%), Reed Elsevier (down 7.6%) and Thomas Cook (down 7.2%).
Investors starting from here, says Raynor, might take a look at Man Group, the world's biggest hedge-fund manager, back from a low of 150p in March to 341p now. With assets under management rising, Raynor thinks Man has further to go, with a 'solid dividend' of 6% to comfort investors while they wait.
:: One in three retired people who unlocked equity from their homes in the past three months needed cash to pay off credit cards and loans, says the Market Monitor On Equity Release report from specialist financial advisor Key Retirement Solutions.
KRS reckons the total amount released in quarter three was £214 million, against £189m in quarter two.
"Pensioners are hard-hit by the current climate, so equity release provides strong support for those who want to maintain a good quality of life," says KRS director Dean Mirfin.
KRS enquiries: 0800 531 6010 and www.keyrs.co.uk/free-guide.
:: The most competitive mortgage lender in the third quarter was HSBC, with only RBS and NatWest coming close, says a new analysis from realpricecomparison.com, a free online comparison service.
It says HSBC introduced several best-buy products, including a 1.99% discount deal for buyers with 40% deposits, in a campaign to capture a major share of the super-prime market.
:: Have some savers decided to go on a spree? The amount of money which UK adults hold in cash savings accounts has fallen by more than 20% since March, says research from Investec Private Bank. It reckons that since base rate hit an astonishing 0.5% on March 5, the average amount held in savings has shrunk from £18,000 to around £14,000.
However, only a few have thrown caution to the wind. Investec thinks 2.3 million people have increased their savings since March, while 57% maintained savings at the same level.
