PPI Reclaiming Guide: Get$1,000s back on loan insurance

If you’ve got or had a loan, credit or store card in the last six years, you may be able to reclaim$1,000s. The misselling of expensive Payment Protection Insurance (PPI) alongside these products has been rife. Lenders like Egg & A&L have had huge fines. This is a step-by-step guide, including free template letters, to reclaiming loan and card insurance.

PPI Reclaiming in a nutshell

The US’s biggest protection racket isn’t run by East End villains with shooters, but the genteel staff of Britain’s banks. For years they’ve been stealing $1,000s, but now the door's open to get your money back.

If you’ve got a loan, credit or store card, you urgently need to check whether they included insurance as part of it. If so, without realising, you could be paying $1,000s for potentially worthless cover.

Get your money back

Payment protection insurance isn’t a bad product. It’s designed to meet repayments for a year in the event of accident, sickness or unemployment. The problem's the way it's been flogged.

The misselling has often been systematic, banks forcing staff to sell these policies or face lower pay. You may’ve been told the insurance was compulsory... IT ISN’T! That alone counts as misselling. Plus the self-employed, unemployed, retired, those with pre-existing conditions, or who are covered elsewhere, have all commonly been flogged unnecessary policies.

You could have it without knowing...

Heavier regulation means this is less likely in the last couple of years, but many people still have loans from when the picture was a bit like this:

        You want a $5,000 loan over five years. You’ve seen it advertised at a cheap 7% rate, so you call up...

        You: “I’d like a $5,000 loan over 5 years please.”
        Bank: “I presume you’ve seen our competitive interest rates.”
        You: “Yes, can you give me a quote please.”
        Bank: “Sure, our fully protected loan is $125 a month.”

        Now most people would find it virtually impossible to mentally calculate how much the monthly repayments should be, so $125 sounds fine.

        It’s a brilliant hustle. The answer contained two little words that make ‘em a fortune - “fully protected”. They mean you’re also being flogged expensive insurance.

        Actually the cost of the loan at 7% should be $100 a month, the remaining $25 is to pay for the insurance. That means if you’d just got the loan you’d have repaid the $5,000 borrowed plus $950 in interest.

        Yet the insurance adds $1,500 over the life of the loan; that's MORE than the interest cost and it's almost pure profit for the bank!

Many people have this cover which is unnecessary. And even those for whom it is necessary are probably paying four times more than you need to, if you got it through your lender.

The PPI Industry has never been in so much trouble

The financial regulator has been fining PPI companies left, right, and centre, for “not treating customers fairly”, plus the Competition Commission has investigated the market and made a number of demands on lenders, including banning sales within a week of selling a credit card or loan and totally banning single premium polices.

The Financial Ombudsman (FOS) has also complained to the regulator that it thinks lenders are "deliberately trying to obstruct the Ombudsman process". It thinks lenders have been rejecting ALL consumers attempts to reclaim, even though once they get to the ombudsman 90%-100% of cases are adjudicated in the consumer's favour.

So if you’ve got a case, write and complain but ASSUME you'll be rejected when you reclaim. Don't bat an eye and just keep going to the Ombudsman. To reclaim, you’ll need to write up to three letters (there are template letters for all of them here) the last being to the Ombudsman, though there's a chance you could get a payout sooner.

As all of this is free, the worst case scenario by reclaiming is you lose the cost of three stamps.

Can you switch expensive current PPI and save $1000's?

There’s nothing wrong with PPI for those who need it. It’s job is to cover loan or card repayments in case of accident, sickness or unemployment (or sometimes just accident and sickness). This is especially useful in current climes.

Yet if you got a PPI policy from your lender, it's likely you’re paying MASSIVELY over the odds, so you should first check if you can get the same elsewhere for less. There are a number of things to be aware of...

   * The insurance cost isn’t in the APR

      If you get a loan with insurance the interest rate (APR) you pay is irrelevant: an 8.5% loan can be cheaper than a 7% loan. This is because the APR doesn’t include the insurance cost, just the cost of the interest (see Cheap Loans guide), enabling lenders to hide expensive insurance.

   * You may only be able to claim for one year

      If you ever need to claim on your insurance, due to losing your job or being ill, many providers restrict each claim to 12 months, no matter how long your agreement runs for.

      So if you claim one year into a five year loan you won’t be covered for the final three years payments, even though you’ll be paying for the insurance.

      Sadly some bank PPI policies are so expensive, that the maximum payout if you claimed for a full year may only be roughly the same as the cost of the policy. E.g. you may pay $1,500 for the policy over the life of the loan, but the maximum it’d pay out is just $1,600.

   * Standalone insurance can be over 70% cheaper

      If you need insurance, it’s possible to get similar cover at around a third of the cost, simply by buying a specialist insurance policy separate to the loan. For more details read either the Cheapest Loan Insurance or Cheap Credit Card Insurance guides.

   * Cancel and switch expensive insurance

      If you already have a loan with insurance from the bank, you should be allowed to cancel it.

      First check if this is possible, then examine whether you truly need the policy. If you do then getting a standalone policy and cancelling the existing one should save you money, leaving less of your cash paying enormous commissions. See the Cheap Loan Insurance guide.

      This can be hugely powerful; after presenting a show on switching PPI for ITV1’s Tonight, I was inundated with people who’d saved thousands, including someone who was going to save more than $20,000 over the life of a secured loan.

 

PPI exposed: Why it's so often missold

The real profit from selling loans often doesn't come from the products themselves, but from the insurance sold alongside. There are around 20 million PPI policies in the US, generating over $5 billion a year for the companies involved. Yet it isn't the insurer that reaps most of the reward, it's the company selling the loan.

The cost of the insurance almost always dwarves the interest cost, so it’s unsurprising many believe this is the most over-priced financial product around.

Worse still in Jun 08, after a 15 month investigation into PPI, the Competition Commission found the following average insurance payout ratios apply:

    * Car Insurance: 78%

    * Home Insurance: 54%

    * Mortgage PPI: 28%

    * Personal Loan PPI: 15%

    * Credit Card PPI: 11%

In layman's terms, this means while for every $100 insurers take on car insurance they pay out $78, on credit card PPI its just $11... meaning it is HUGELY profitable. Yet most of this profit goes to the lenders, not the insurance companies.

You CAN get your money back

The only silver lining to all this is it means misselling cases are easier. There have been thousands of success reports, and many more still due. Here are just a couple of MoneySavers’ success stories for inspiration:

    "Just received notification that I’ll have my PPI refunded! I took out a loan in January 2003 and I took the PPI because they would not give me the loan without taking it, which shouldn’t happen.

    I sent my letter and less than a week later they told me that I’d be getting $1,191 back! My letter stated that they had missold me the policy. My loan will be finished early now! No fuss and no hassle at all. Result!!"

The same can work on secured loans too:

    "About two years ago I took out a $40,000 secured loan and was told I needed to also take PPI worth $7,200 or I wouldn’t be accepted. I did not know any different and stupidly took out the loan.

    Recently I contacted my lender to complain but it said that I signed the agreement and that was that. I then contacted the Financial Ombudsman and a few months later I have just received a letter from my lender saying that they admit fault and taking advice from the FO they enclosed a cheque for all of the PPI plus interest, a whooping $8,500."

The ‘Have I Been Missold?’ Checklist

Before getting into this, if possible get hold of a copy of your policy’s terms and conditions. If you can’t find them, contact your lender to ask for a copy (but make sure it dates back to the time of your agreement as terms will change over time). Lenders can ask for $1 to provide this but not all do so you could include a cheque for $1 (don't send cash though) to speed it up a little.

The sellers of PPI have a responsibility to ensure that you understand the nature of the product and that it is appropriate for you.

All polices will have certain exclusions and you should have been told about them. As most policies are bought with a loan or credit card rather than standalone the key thing is...

 

What was said at the point when you were sold the product?

The following are the key misselling categories, if you fit one or more of these you probably have a case.

The Big One: Were you told or sold the wrong thing?

This covers anything from being told the insurance was compulsory, to not knowing you had even purchased PPI, to the fact you were already covered through work or your partner.

It also applies if the policy isn’t what you agreed to, you got store card cover in a shop and it wasn’t explained or you didn't realise it's a joint policy but only in one person’s name.

Were you self-employed, unemployed or retired?

If you were unemployed or retired, then check if the policy included unemployment cover. If it did, the unemployment cover is worthless and this should’ve been pointed out to you.

If you were self-employed you need to check whether you were eligible for a payout if your business went bust (usually not) and if not, and it wasn’t pointed out, you may have a case.

Had you had medical problems in the past?

Most policies exclude existing medical conditions, meaning you are unlikely to be covered for any medical problems you have had in the past. This is something you should’ve been asked about and informed the policy could be affected.

Has your provider already been fined for PPI problems?

Many major providers, including Alliance & Leicester, Egg and Capital One have been fined for “not treating customers fairly”, and more are expected soon. If yours has, it’s very likely you’ve a case.

Were you sold a ‘single premium’ loan policy?

A single premium policy is where the whole cost of the insurance is added as a big lump sum at the start of the agreement, which is then repaid over the term of the loan. Many loan policies were sold like this and while sales are soon to stop, if this applys to you and you left or changed your agreement part way through, you may be eligible for a part refund.

Did you buy online?

If you bought your loan or credit card online, reclaiming’s more difficult as the full T&Cs are usually available there.

An exception to this is if you purchased from a lender using pre-ticked boxes, meaning you had to opt out of the insurance rather than opt in. In July 07 all lenders agreed to stop doing this but if you took out an agreement before this date check your policy for insurance.

How to reclaim?

This is all about following a dance. Most people with a decent claim get paid out, but very few get it just by writing one letter. Lenders deliberately try to put people off with rejections and sadly it works, yet follow all the steps through and you should improve your chances.

Reclaiming almost certainly means that your insurance will be cancelled, as you are effectively saying it is not suitable to your needs, so only start the process if you definitely want your insurance to come to an end.

How far back can you go?

Before starting, it's important to see if your claim is valid.

   * Did your policy start in the last six years?

      If your policy started in the last six years, whether you're still using it or not: Reclaim and ask your lender for a copy of the paperwork if you no longer have it.

   * Is your policy older but still active or ended in the last six years?

      If your policy started over six years ago and you are either still using it, or it ended within the last six years: Reclaim and ask your lender for a copy of the paperwork if you no longer have it. Your chances of success may be reduced if you have been aware of the misselling for some time, you have already complained or your account is very old.

   * Is your policy older?

      If your policy ended over six years ago and you have the paperwork: Reclaim, although your chances of success are reduced, as it will depend on what you can remember about the sale.

      If your policy ended over six years ago and you do not have the paperwork: It's unlikely there will be records and unlikely the reclaim will be successful.

However before starting the reclaim process there’s one big rule...

If you have received a payout from the insurance, you won’t be able to say the policy was missold.

However even if this is the scenario, you may be able to cancel your insurance.

Stage 1. Write to the seller

Write a letter to the company that sold you the policy asking for a refund. There’s no need to specify the amount as they'll calculate this for you, just explain that you think the insurance was missold, that you are writing to complain and you want your money back.

If the seller was acting as an appointed representative of the insurance provider, it will probably tell you to contact the provider instead. Use the address of the branch you visited for your first letter; any follow up can be sent to the head office if necessary.

It's worth checking whether the company you're contacting was regulated by the FSA at the time of your sale. If either the lender or the seller (broker) were it's best to contact them first as you'll be able to go to the FOS for help further down the line if needed.

To help, below is a full template letter to select the most relevant points. You should also enclose copies of any paperwork that backs up your case and send the letter by recorded delivery, keeping a copy yourself.

The most important thing to understand after you write your initial letter asking to reclaim for missold PPI is...

The lender will almost certainly say no & come up with a reason you’ve no case. Ignore it, don’t bat an eye, this is an attempt to stop you carrying on.

And it's not just me saying that, even the Financial Ombudsman has formally complained to the regulator that some lenders are "deliberately trying to obstruct the Ombudsman process". They've been rejecting ALL consumers' initial requests to reclaim, even when they know if they get to the ombudsman 90%-100% of cases are adjudicated in the consumer's favour.

This is done as a way to prevent people who lack the determination to pursue the claims. So you must go into this expecting rejection at this stage, and understand it's just part of the process.

Stage 2. Now threaten the Ombudsman

Now it’s time to get a little bit more militant. Send a simple letter that encloses a copy of your first letter indicating that you’re not happy and would like it to look again at the case. You should also say that if it doesn’t agree then you will make a formal complaint to the Financial Ombudsman Service.

If you have been offered a settlement at this point, but you just don’t believe that is high enough, then there is nothing stopping you writing back and giving an amount you would be willing to accept ‘without prejudice’. This means that if your lender chooses not to settle for this amount, it can’t use it against you later.

Stage 3. If all else fails complain to the FOS

If you still haven’t reached a satisfactory conclusion, it’s time to make a formal complaint to the Financial Ombudsman; the official independent service for settling disputes between financial companies and their customers.

The FOS is completely free to use, and will adjudicate on whether your claim should be paid out. It will look at your complaint (see some examples) and decide whether your policy was sold unfairly or unreasonably. It can only do so once eight weeks have passed from the date of your first complaint letter, unless the lender itself specifically suggests you go to the Ombudsman.

To make its decision the FOS will look at each case individually, so if yours is a matter of you saying one thing happened but your lender disagrees, the FOS will decide if it thinks the lender acted fairly. As the party with responsibility to provide full details of the insurance, the lender are expected to have more evidence on what happened to back up its case.

Currently, of the cases that need to go as far as the Ombudsman, two thirds are being awarded in consumers' favour. And even if yours isn’t, there is no penalty for losing, it just means you don’t get the money back.

Help with filling in the form

To make your complaint, just contact the Ombudsman and ask it to take on your case. You can either do this via the FOS website or by calling 0845 080 1800. After contacting it, you will need to fill in and sign a copy of its complaint form to explain your complaint and enclose copies of any paperwork that backs up your case.

It’s quite simple to fill in, though do take care. To help I've written a guide, which takes you through filling in the form step by step. It's written in Microsoft Word so you can easily cut and paste sections of it and/or print it out and have it next to you as you're filling in the FOS form.

The FOS will then send you a confirmation letter to say it will look into your case and get back to you if it needs any more information. Sometimes this will take a long time, usually around 6 months but maybe even up to a year, but don’t worry, you can then leave the matter to the FOS to resolve and it will contact you with any offers from your lender.

Stage 4. Where the Ombudsman can't help

The Financial Ombudsman Service (FOS) can only help with complaints about companies regulated by the FSA. While all PPI sales from January 05 are regulated by the Ombudsman, some policies before that aren't.

    * Bank sold policies

      Any provider that was fully regulated by the FSA prior to Jan 05 will be covered by the Ombudsman. That means all banks and building society loans should be fine.

    * Other sellers

      If you got the product in 2004 or earlier, and the provider wasn't covered by the FSA before that, such as a Car dealership or some Hire Purchase arrangements, then the Ombudsman sadly has no jurisdiction. Yet always call the FOS and check first.

      In general if this happens the FOS will put you in touch with another organisation, either an official one or a trade body that may be able to hear your complaint; someone like the Finance & Leasing Association or Association of British Insurers.

      This does makes getting a payout more difficult, though it's still worth following it through. Please report your experiences in the PPI Non-FOS Reclaiming forum discussion.


Option 1: Use a claims handling firm/lawyer

If you're in this situation, reclaiming is more difficult, and for all but the most legally or financially literate, the DIY route may no longer be appropriate. There is a chance that the Citizens Advice Bureau may be able to help, but in general you will have to look at one of two sources...

    * Claims handling companies

      There are a number of companies who now offer PPI reclaiming services. Many have just jumped on the bandwagon of the work done by reclaimers and they should be avoided... they take a chunk of the proceeds when this is usually something relatively easy to do using the free letters.

      Yet at this stage things are much more complex, and much more work is needed, so bringing in a paid body can be useful. Most of them offer 'no win no fee' deals, and will take a cut of any successful claim. While I'm no fan of these companies often some of the more reputable ones e.g. Conkers and LoanCheck (the latter only for certain types of loan) get results when going it alone would be a hassle.

      If you're picking a company, check out its reputation. NEVER pay them a penny, and try not to agree to one which will take any more than 25% of your compensation. Try asking how long it has been handling PPI claims and for references from other satisfied customers, which it should be happy to do if kosher.

      All claims companies must be regulated for claims management activities and will have a reference to check (e.g. CRM1234) on the Ministry of Justice database. Avoid anyone not on this list.

    * Get a lawyer

      The alternative is to find yourself a local lawyer willing to take the case on, or a no-win no-fee legal firm (some claims handlers link with/use them). After all from this point on it's likely to get litigious so a lawyer should help. In fact a legal letter may make a company with a flimsy argument settle quite easily.

      Yet if you are going to hire a lawyer, ensure you discuss the fees beforehand and compare it to the maximum you can reclaim.


Option 2: Take it to court yourself

If you've tried a claim through the trade organisation and it won't help, there is always the option of taking court action against the provider via the small claims system. The claim is generally on the grounds that it has misrepresented your contract (and therefore made it invalid) if it did not give you the full facts about the product or ask for all the required information.

This can actually be quicker than using the Ombudsman, but will involve costs, although you will get these back if you win, and there’s always the risk you’ll have to argue it in court. If you have good grounds, and understand the legal arguments then do consider it. There's a good chance it will force the PPI company to settle, but there are no guarantees.

For further details on how to take county court action see the going to court section of the Reclaiming Bank Charges article and if you give it a try please feedback in the successes and failures thread; as all feedback is useful for other MoneySavers.

Please feedback your experiences

Things will continue to develop over time. Please give us feedback so that we can keep our article up to date and help as many people as possible by reporting your successes and failures in our forum.

How much will you get?

This is potentially big money. For loan reclaims we could be talking many thousands of pounds. Yet calculating the actual amount is difficult and often unnecessary, as the lender will do it for you.

However, it’s possible to estimate how much the insurance has cost, to get of how much you can reclaim (of course it then depends whether you’re entitled to all or just a portion of it).

Estimating how much the insurance cost

The amount of insurance is different from product to product.

Loans

Obviously if you know what the insurance costs per month, simply multiply this by the length of the loan to work out its cost.

If not, you can do a very rough estimate as follows. Work out the total cost of your loan, simply by multiplying the monthly payments by the loan length and then take 15% off the total. This is a typical insurance cost (although it can be anywhere between 10 and 30%).

The following table gives some examples:

Loans: Estimating the insurance cost

Cards

The estimate is more difficult on cards as the amount you owe changes each month. Estimating is therefore far more of a 'guesstimate'. Yet there is a way to get a very rough idea.

Most card insurance plans cost roughly 80p per month per $100 of outstanding debt. We can therefore work out that for every $100 of debt you have averaged over a year, you’d pay $10 in insurance. In other words, roughly 10% of your outstanding debt in insurance each year.

The following table gives some examples:

Cards: Estimating the insurance cost

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