The British Banking Association's (BBA) decision to drop its legal battle over payment protection insurance (PPI) is a long overdue triumph of common sense. But what is PPI and what does this latest move mean for you?
PPI started being offered in the 1990s as an insurance policy on mortgages, loans and credit cards it would cover people's repayments if their income fell due to illness or unemployment. However, once the banks discovered how profitable PPI was in 2004 The Guardian revealed that many banks were returning just 15% of their PPI income to claimants they started to push it more and more. This cash cow was eventually targeted by the regulators who spotted four problems with it.
Firstly, PPI was overly expensive premiums often added 20% to the cost of a loan, but in some cases it was more than 50%. Secondly, PPI was carefully structured to minimise the chances of anyone actually being able to make a claim. Thirdly, the product was being mis-sold either to customers who didn't realise what they were buying, or to people who would never be able to claim on it (such as the self-employed). Finally, PPI was branded inefficient as even the very few claimants who stood a chance of getting a payout faced a lengthy and complicated claims procedure.
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The Financial Services Authority (FSA) has brought in strict rules about PPI now and has insisted that these be applied retrospectively meaning the banks should compensate anyone who has ever been affected by a breach of the new PPI rules. The banks had been resisting this via a lengthy court battle. But now they've thrown in the towel after both Lloyds and Barclays announced they were withdrawing from the court case and preparing to pay victims compensation.
So, if you have, or ever had, a PPI policy, the first thing to check is whether it was mis-sold (not all were). Check what your policy covered and whether it was appropriate for your circumstances when you were sold it. If you were mis-sold PPI then you don't actually need to do anything as providers are required to contact anyone they think may have been affected. But since that could take some time, you could try speeding up the process by contacting your PPI provider yourself.
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