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UK Banks Lose Fight Against Payment Protection Insurance

by Jim ONeil on April 26, 2011

in uk banks

Payment protection insurance, also called PPI, is an insurance product that covers outstanding debt like overdrafts or loans. Banks and credit providers sell it as an add-on to an overdraft or loan product. PPI covers a borrower against events that may limit earnings used to repay the debt such as sickness, unemployment, accident, or death.

In general, PPI covers minimum overdraft or loan payments for a specific period, usually 12 months. The British Bankers’ Association (BBA) recently lost a move to avert new regulations regarding how PPI should be sold. The new Financial Services Authority (FSA) and Financial Ombudsman Service (FOS) rules also stipulate how banks should handle previous cases of possible mis-sold PPI.

Many new PPI complaints are being placed on hold by banks because the BBA may elect to appeal within the permitted 21-day window. Two years ago, banks were informed to re-examine previously rejected claims. According to the new rules, all past PPI customers must be contacted, even if they have not complained.

Past cases of mis-sold PPI could result in extra compensation totaling billions of pounds.

Under the new rules, credit card companies and banks must be more careful when selling new PPI policies. The FSA estimates 550,000 complaints annually over the next five years due to the new measures. The Competition Commission is implementing separate regulations that will prevent lenders from selling PPI at the time they grant loans.

According to the FSA, an individual could receive an average of £1,800 if he or she paid up-front for a mis-sold single premium policy. Someone purchasing a policy that required regular premiums could be repaid an average of £900.

Anyone who feels he or she was mis-sold PPI should lodge a complaint with the firm that sold the policy. A rejection or lack of response within eight weeks may be escalated to the FOS.

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