Payment Protection Insurance for Loans

Next time you take out a loan, think very carefully before buying the extra insurance. PPI (Payment protection Insurance) for loans has become a very profitable way for banks to make extra money on selling loans. It is estimated that only 20% of money collected in the scheme is returned to consumers, leaving banks with an 80% profit. The magazine Which have criticised this for being ’shockingly high’. Many customers are taking steps to claim back money. There is a template for getting a refund from banks here

Cost of PPI

The cost of PPI can add upto £3,000 for a £7,500 loan. It effectively doubles the interest rate making a personal loan more expensive than borrowing on a credit card.

Misselling of PPI

Furthermore, it is argued that the industry is guilty of misselling PPI. There are often many exemptions (e.g. if you are self employed, disabled, if you had a medical condition you did not explain e.t.c) which make it difficult to make a claim on a loan. Many consumers do not realise that Loan insurance is optional and not necessary.

HFC a subsidiary of HSBC has been fined a record £1.1 million by the Financial Services Authority for selling loan insurance to the sub prime market without proper explanation of the many exemptions and small print.

Margaret Cole of the FSA said:

“The fine against HFC – the biggest PPI fine to date and first since our September announcement – is evidence of our determination in this area,”

HFC is not the only firm to get fined, other firms include Capital One Bank. It is also likely that other big financial banks like Halifax, Lloyds, Natwest, and Abbey National will come under increased scrutiny

Complaining about Misselling of Loan Insurance

If you have bought loan insurance (PPI) and feel that you were not explained its full cost and also the many exemptions that apply, it is worth complaining to your bank and if necessary raising it with financial authorities. It is fine to write a simple letter saying that you would like a refund because the product was mis sold contrary to FSA regulations. There will be many banks wanting to avoid the large fine of HSBC and also the bad publicity that goes with it.

• Complain to the Financial Ombudsman - for the misselling of any financial product
• Bank’s £4 billion protection racket at Independent