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2 million payment protection insurance policies 'worthless'

29 May 2008 / by Daniela Gieseler
As many as two million payment protection insurance policies may have been sold to consumers who might never be able to make a claim on them, research by leading consumer body Which? reveals.

Payment protection insurance (PPI) is usually taken out to cover loan or debt repayments in case people are unable to work due to illness or redundancy. Banks offer it when customers take out new credit cards or loans, but it is also sold by car dealerships, retailers and other businesses.

Which? surveyed consumers who had taken out PPI cover in the past five years, and found that nearly one third (32 per cent) might not qualify for the benefits they have been paying for. Between 1.7 and 2.1 million policies could be absolutely worthless, because the policyholders fall foul of one of the 'significant exclusions' hidden in the small-print of their policy.

"People who are self-employed or on a fixed-term job contract, for example, often aren't covered by PPI. Nor are many people aged 65 and over, or people who might claim for absences relating to pre-existing medical conditions", explained a Which? spokesperson.

In addition, many consumers might not be aware that PPI only pays out for a limited amount of time, usually 12 months, and that insurance taken out on credit or store cards often covers no more than the minimum monthly payment.

"We've always known that people were being mis-sold, but we were still amazed to discover the scale of it," Which? personal finance campaigner Doug Taylor said. "It appears that salespeople are chasing their commissions, while their bosses are chasing profits. Where's the sense of responsibility to the customer?"

Which?'s research comes only days before the publication of what is expected to be a highly critical report on the £5billion-a-year PPI industry from the Competition Commission, due on 5th June.

The report is likely to propose drastic changes to the way payment protection insurance policies are sold in order to ensure that consumers are able to make informed decisions and are given more choice and fairer prices.

In view of the potential risk to consumers, the FSA has declared payment protection insurance a priority and has fined or censured a series of companies for their appalling selling practices.

In a statement issued yesterday the British Bankers Association (BBA) emphasised that PPI still offered a viable means of protection for consumers: "PPI provides borrowers with a plan B if their circumstances change."

"If they lose their jobs or become ill, their commitments can still be met, so it's important that people are not discouraged from taking it out."

However, consumers should check policies carefully before taking them out, say consumer campaigners, and those who think they have already been mis-sold payment protection insurance should take action immediately. Doug Taylor of Which? recommends: "Now's the time to fight back."

© Fair Investment Company Ltd