PPI was widely sold by banks and other credit providers as an add-on to the loan or overdraft product.
[1] PPI usually covers payments for a finite period, typically 12 months, in which case they might be marketed as short-term income protection insurance (STIP) policies.
The period covered by insurance is typically long enough for most people to start working again and earn enough to service their debt.
Notably, in the case of PPI, the number of rejected claims is high compared to other types of insurance.
[5] In the United Kingdom, according to the UK Government, PPI was mis-sold and complaints about it were mishandled on an industrial scale for well over a decade, with this mis-selling being carried out by not only the banks or providers, but also by third-party brokers.
[8] Certain companies developed sales scripts which guided salespeople to say only that the loan was "protected" without mentioning the nature or cost of the insurance.
When challenged by the customer, they sometimes incorrectly stated that this insurance improved the borrower's chances of getting the loan or that it was mandatory.
The FCA fined Clydesdale Bank £20,678,300 for serious failings in its PPI complaint handling processes between May 2011 and July 2013.
In their 2009/2010 annual report, the Financial Ombudsman Service stated that 30% of new cases referred to payment protection insurance.
[10] Slightly before that, on 6 April 2011, the Competition Commission released their investigation order[11] designed to prevent mis-selling in the future.
Key rules in the order, designed to enable the customer to shop around and make an informed decision, include: provision of adequate information when selling payment protection and providing a personal quote; obligation to provide an annual review; prohibition of selling payment protection at the same time the credit agreement is entered into.
[12] Lawyers were appalled at the "reckless" advice the Irish Central Bank gave consumers who were missold PPI policies, which "will play into the hands of the financial institution.
"[13] UK banks set up multibillion-pound provisions by 2012 to compensate customers who were mis-sold PPI; Lloyds Banking Group set aside £3.6 billion,[14] HSBC have provisions of £745 million,[15] and RBS estimated they would compensate £5.3 billion.
[18] Payment Protection Insurance can be useful; however, many policies were mis-sold alongside loans, credit cards and mortgages.
[19] The judicial review that followed hit the headlines as it eventually ruled in the favour of the borrowers, enabling a large number of consumers to reclaim PPI payments.
[24] For example, consumers are sometimes led to believe credit life insurance is required when added to loan contracts.
For states that do not cap interest rates for installment loan balances, there are often unconscionable provisions in place.