PPI scandal sees billions of pounds in payouts

Mis-sold loan insurance backfires on banks

by Russell Shackleford, 7th October 2011

PPI, or Payment Protection Insurance, is looked down upon by many in the wake of the mis-selling scandal which saw many lumbered with expensive loan insurance policies. But is PPI necessarily a bad thing, and if not, how did it end up reviled by so many?

A PPI policy, which can be known by many other names such as loan protection or loan insurance, is a form of coverage which ought to ensure that, if a borrower should find themselves unexpectedly deprived of income in a fashion which renders them incapable of paying back their loan, they will receive a series of payout enabling them to continue repayment and avoid defaulting.

This may sound all very much like a situation in which one would be thinking "so far, so good", but unfortunately the depths of PPI mis-selling transformed this benevolent form of insurance into a dangerous game.

Essentially, borrowers were encouraged to take out PPI even when they could never have benefited from it, were already covered by other forms of insurance, or simply did not want it. Some were even lied to and told that they needed it to take out the loan, or that it would improve their chances of being approved for one; an unlucky few had it added to the cost of their loan without even being told what it was or that they would be paying for it.

Of those borrowers who did try to claim on their PPI, many found that they had been mis-sold a policy and were unable to. The banks had offered a useless and pricey service to their wretched customers.

Fortunately, billions of pounds in compensation had to be set aside after the banks' duplicity was revealed, and now millions of people are eligible to claim their mis-sold PPI compensation.