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Archive for tag: The Problems of PPI

The Problems of PPI

As an insurance product, you have probably heard of it and the billions of pounds in compensation now finding its way back to customers who were mid-sold the product.

But what were the problems?

#1 Impressions

For banks and lenders, when a customer takes out a loan, they make money. In a competitive market place, it makes sense that a lender or bank would offer incentives to try and grab as much of this business as they can.

Unfortunately, this included giving the impression that if they bought PPI, the customer was more likely to be accepted for the loan. Thus, they opted for it, the bank made more money and the customer thought they had found a sure-fire way of bagging the loan they needed.

#2 There was no other insurance policy in direct competition with PPI

And this meant that financial companies, brokers, lenders and banks could effectively charge what they wanted. Although income protection offers a great level of cover, it is not the same as PPI so was not a direct competitor that could keep PPI cost in check.

In other words, banks and lenders had carte blanche to do what they wanted in relation to PPI costs.

#3 Not all companies have face-to-face access to customers

And this say consumer groups, is another reason why banks and lenders could get away with charging so much for PPI.

Other companies who could provide PPI and other insurances at better rates may not normally operate at face to face level. In other words, their business would go through brokers and intermediaries who then added significant costs to PPI which the consumer paid. If the big finance companies saw this happening, they would not be able to do anything about it, simply because they were not in the position to do so.

#4 Consumers didn't look for better deals

There is also an argument that within the field of personal banking etc., customers are not really interested in finding a better deal and swapping providers etc.

This is because, for a long time, customers have assumed that loyalty to a bank or lender will be repaid. Unfortunately, this was not the case.

What this meant was that there was little pressure on banks to improve their services or up their game. In essence, they could charge what they wanted for PPI because consumers were placing little pressure on them by looking to a competitor to provide a better deal.

#5 Offsetting

Banks and lenders tell us that the profit margins on loans and credit cards etc. are low but with the high profits connected to sales of PPI, they saw a chance to give their profits a significant boost.

In other words, there was very little pressure on banks and lenders to change their ways, hence they continued to mis-sell PPI.

Isn't it time you claimed your PPI compensation?