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Part 2: PPI Compensation – What’s Changed?

Payment protection insurance or PPI is the thorn in the side of the British banks. Once the golden ticket to vast profits and healthy commissions for employees, it is now a product that many banks are attempt to either distance themselves from, or ditch it altogether.

With heavy weights like the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) involved, it is turning into a saga that had hit the banks harder than what they thought.

But what has changed?

No single premium policies

PPI could either be calculated as a rolling monthly premium, such as the PPI monthly premiums calculated on credit card accounts or sold as a single-premium policy in which the new policyholder paid for the product in one lump sum. This effectively made it more expensive as customers paid interest on this every month.

The problem with this type of policy was the lack of refund in policy holders attempted to cancel before it expired and also the fact that in most cases, they were sold as 5 year policies - although your loan could be taken out over a 10 year term.

Break of 7 days between main product and other add-ons

It has also since been recognised that purchasing a loan, for example, is an emotional decision on the part of the consumer and selling additional products at this time is unacceptable. There must now be a suitable and reasonable gap between the customer taking out a financial product and the bank or lender offering any additional products, such as insurances.

Advised sales

In many cases, banks like the customer to have some back up or fail-safe policies in the event that they are unable to continue making payments. This is especially true or large products such as mortgages; neither is it unreasonable when you think of the amount of money sometimes involved!

However, rather than it being a verbal exchange and advice between the consumer and bank, any products which they are advising are perfect for the consumer must be transferred to a written letter. In other words, advised sales need to be clearly explained in a letter to the consumer.

Opt in not out

Many customers who are now seeking PPI, were caught out by the 'opt out' box at the end of the very long small print. In most cases, this box was left blank and so the bank took this as carte blanche that the customer wanted the PPI policy; in other cases, the box was already ticked.

In terms of such policies, the customer must now be given the option to 'opt in' to such schemes, ensuring they have read and understood the terms and conditions.

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