Prepare for PPI part 2

The payment protection insurance saga is heading for a sequel.

Supreme Court building, London © Alamy
The Supreme Court has helped pave the way for commission-related claims
(Image credit: © Alamy)

If you thought you’d heard the last of payment protection insurance (PPI) claims, think again. A new round of payouts may be about to begin – and you could be owed thousands. Over the years PPI was sold to millions of us, attached to loans, credit cards and mortgages.

The idea was that PPI would cover your repayments if you died, became ill or disabled, lost your job, or for some other reason were unable to pay the debt. You just paid a small premium alongside your debt repayments. The trouble started when it became clear that many of us had been sold PPI despite the fact that we would never be able to claim on it owing to exclusions in the small print.

With hefty commissions on offer, banks were keen to sell PPI regardless of whether it was of any use to the customer. Since 2010 “more than £35bn has been handed back in compensation to mis-sold customers”, says James Andrews in the Daily Mirror. That was all meant to end last August when there was a deadline set for claims. But now “another scandal... lurking within the original one could open the floodgates for further claims”, says The Sunday Times. The issue now goes beyond mis-selling and focuses on the commission banks earned from insurance firms when they sold PPI.

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A large percentage of the PPI premiums customers paid went towards the commission, not the insurance. In some cases 97% of customers’ payments went to the salesman. “The people doing the selling benefited from the sales of these policies to an obscene extent,” says The Sunday Times. “In the opaque world of PPI contracts and deals between insurance companies and banks, fat commissions were paid by those who could least afford it to those who did not deserve them.”

Reclaiming fat commissions

The good news for customers is that you may be able to get your money back now, even if you weren’t mis-sold PPI. In 2014 the Supreme Court judge Lord Sumption ruled that “any reasonable person…who was told that more than two-thirds of the premium was going to intermediaries would be bound to question whether the insurance represented value for money and whether it was a sensible transaction to enter into”.

This led to the Financial Conduct Authority (FCA) ruling in 2017 that the banks should refund the excess when commission payments made up over 50% of a premium. So if your premium was £50 and 60% of that was commission, you should have got £5 back. Now several people have successfully gone to court to argue that their PPI policies were unfair and have won far more of the commission back. This could open the floodgates for everyone to reclaim all of the commission they paid. In one case a customer discovered that a PPI policy sold by Citibank funnelled 95.2% of the premiums towards commission. Citibank must now repay £7,954.

This all means a new round of PPI claims can start. “Even if customers were happy with a PPI product – because it [suited] their circumstances – they may still be able to claim as they were unaware of the ‘unfair’ nature of the product due to the high commission charges,” says Ali Hussain in The Sunday Times. These rulings could lead to “millions of new compensation claims”, says Matt Oliver in the Daily Mail. “But fresh claims, including [from] those who have already received partial refunds through the FCA scheme, would have to be made through the courts.”

Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings and credit cards to pensions, property and pet insurance. 

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping among many other titles both online and offline.