Mis-sold PPI scandal means big payouts for customers

Loan insurance debacle leaves millions out of pocket

by Russell Shackleford, 9th September 2011

The compensation payouts for mis-sold PPI, also known as Payment Protection Insurance, has hit the banks' profits hard - but consumers are delighted by the money back they have received after the deception of lending institutions led to them paying through the nose for useless insurance policies.

Mis-sold PPI turned out to be a huge financial scandal after it was revealed that millions of people were paying high costs for loan insurance policies which they did not want, could not use or even did not realise they were being charged for.

PPI policies are intended to guarantee an individual the ability to continue paying back a loan, even if they should lose their job or suffer some other unforeseen misfortune leading to a loss of income.

Policies like this should be an optional extra for those who would be properly covered in the stated eventuality, but PPI mis-selling involved the high street banks and other lending institutions pushing policies on all of their customers, leading to situations where those who would never be able to claim on PPI were encouraged to take out the insurance regardless, or were even told that it was a necessary prerequisite to having their loan approved.

Fortunately, the FSA stepped in, with new regulations meaning that not only were the banks legally required to stop mis-selling PPI, but also  were obligated to ensure that customers could be compensated if they had been mis-sold Payment Protection Insurance in the first place.

The banks attempted to resist this, but a judicial review found them in the wrong and the case collapsed, leading to most lending institutions being forced to set aside billions of pounds for wronged customers to claim, ensuring that consumer justice could be done and that those who had been unfairly treated were entitled to redress.