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Archive for tag: What Was the Problem with PPI

What Was the Problem with PPI?

With the furore around payment protection insurance (PPI) still going strong, more so with the FCA adverts strongly advising people to make a decision and lodge their claim ahead of the August 2019 PPI deadline. What has become lost in the saga is pinpointing just what the problem was with PPI.


The PPI saga has taken many twists and turns. Just when you thought all was going quiet on the PPI front, something new would come along and inject new life into the scandal.

But what was the problem? Why did PPI become such an issue?

#1 PPI was expensive

Insurance products can be expensive. The more cover they offer, the more specific they are, the higher the cost.

For a specific life insurance policy, for example, you can pay high premiums every month. But, if you have the peace of mind that should the worst happen, you are covered, you may think this is a price worth paying.

People assumed that the PPI policy that they were paying for would do the same. But it didn't. It was expensive, especially for the very little cover that it did offer. Adding insult to injury is that for some customers, they were paying for an insurance policy that didn't offer them any cover because they were ineligible under its terms and conditions.

#2 Long claiming process

If you did decide to make a claim on the PPI policy, you would come up against two problems;

I.  You may have been horrified to find that the insurance policy you were relying on for cover did not actually cover you or your partner

II. If you were 'covered', the process of making a claim was long, drawn-out, overly complex and off-putting. It took some people - the small minority who did make a successful claim - over 12 months for the policy to kick in.

#3 How it was sold

Do you remember how you were sold PPI, or when it was sold to you?

This was one of the reasons why the sale of PPI was referred under marketing and selling rules to the now closed Competition Commission in the late 1990s.

Customers were being told they had to buy it, it was part of a package or the customer was given the impression that to buy it would stand their application for credit in a better light.

The inference that it was a compulsory purchase led many of us to believe that the bank had our best interest at heart and was selling us a policy that was useful.

It wasn't.

#4 Advised sales

There were also people who were advised to buy PPI, although the reasons why were not made clear.

As a result, there have been many changes in how insurance products can be sold by banks. PPI is no longer a valid insurance product. If you want to protect repayments on loans, take a look at other products such as income protection insurance.

In the meantime, claim PPI compensation with the help of Payment Protection Scotland.