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ombudsman news

issue 108

March/April 2013

it sounds like PPI ... but it isn't

Anyone who takes an interest in our work will know that PPI accounts for a significant - and growing - proportion of the cases that we see. Extensive media coverage of PPI mis-selling - and advertising by claims-management companies - has led to a common perception that PPI is a toxic product.

But not all PPI was, or is, “bad” - which is why we don’t uphold all PPI complaints. For the right people in the right circumstances, making sure they had the right sort of protection against unforeseen events was a sensible decision.

Too often, however, financial businesses failed to ask themselves - or in some cases chose not to ask themselves - whether PPI was really right for their customer, or failed to talk openly and honestly with their customers about what the product was.

The Financial Services Authority and Office of Fair Trading recently published joint guidance for businesses about “new payment protection products”. And over the last couple of years, we have seen more cases involving different “payment protection products”.

Some of these complaints involve products that are similar to PPI in that they are “insurance-backed”. But many involve products that are not insurance at all - for example, “debt-freeze” products, which, when activated, freeze the interest on an account balance and suspend any late payment charges that would otherwise apply.

Although the different products available work in different ways, they all offer some sort of financial protection when a consumer finds themselves in financial difficulty.

Unfortunately, the similarities do not end there. Although we haven’t seen the widespread problems we have seen with PPI, we have received a number of complaints about these products that have raised similar issues - for example, whether a business provided advice about the product with reasonable care and skill, or whether it gave the consumer information in a way that was clear and not misleading.

Because we are seeing similar issues, our approach tends to be the same even though there may be technical differences between the products involved.

We also find that consumers are often confused about whether the product they have taken out is actually PPI - or some other form of “payment protection product”. Understandably, consumers sometimes find it difficult to tell these products apart.

But it is disappointing that we also see some businesses and claims-management companies failing to identify the actual product that a consumer was sold and is now making a complaint about. This can lead to unnecessary confusion, delay and frustration on all sides.

The volume of complaints about these products is very small compared with PPI. But in the cases consumers refer to us, we expect financial businesses to have shown that they have learned the lessons of PPI in the way they marketed and sold these products - and, of course, in the way they handled complaints if something had gone wrong.

The case studies that follow illustrate some of the more common situations that we see in relation to “payment protection products” including:

  • a consumer who felt a debt-freeze plan wasn’t appropriate for him - and that it should never have been sold to him;
  • a consumer who was disappointed that his plan didn’t do what he was expecting it to do when his circumstances changed; and
  • a claims-management company that mistakenly thought a debt-freeze plan was a form of PPI.

issue 108 index of case studies

  • 108/1 - consumer complains that a debt-freeze product was added to her account without her consent
  • 108/2 - consumer believed he had been mis-sold PPI - but was actually complaining about a card protection policy
  • 108/3 - consumer complains he was made to feel he "had to have" a debt-freeze plan
  • 108/4 - self-employed consumer complains that she should never have been sold a debt-freeze plan
  • 108/5 - retired consumer complains debt-freeze plan was not suitable for his needs
  • 108/6 - consumer complains that business refused to activate the debt-freeze plan on his credit card account
  • 108/7 - consumer felt the business had acted unfairly by not activating his debt-freeze plan
  • 108/8 - claims-management company complains about mis-sold PPI - when consumer's product is actually a debt-freeze plan

108/1
consumer complains that a debt-freeze product was added to her account without her consent

When Ms D took out a loan in 2005, she also took out a PPI policy. In 2009, she tried to claim on the PPI policy - but her loan provider turned down the claim, saying it related to a “pre-existing medical condition”. Ms D cancelled her policy straight away. But she was annoyed about what had happened, so she complained to her lender about the way the policy had been sold to her. The lender accepted her complaint and paid her compensation.

In 2011, Ms D was looking through her loan statement and noticed that since she had cancelled her PPI policy in 2009, she had been paying “credit protection” charges. Ms D couldn’t recall taking out any sort of payment protection when she had cancelled her PPI policy. So she got in touch with her lender to ask what was going on.

The lender explained that this credit protection product was different from PPI - in that it wasn’t an insurance product. The lender explained that this was a “debt-freeze” product - that would freeze interest and late payment charges if Ms D found herself out of work and unable to make her repayments.

Ms D complained to the lender, saying she had never asked for credit protection - and that she would not have taken it out if it had been offered to her. She pointed out that the product had been added to her account without her knowing about it. 

The lender rejected Ms D’s complaint. It said the product would have been explained to her - and that she would have been sent the terms and conditions by post. Unhappy with this response, Ms D brought her complaint to us.

complaint upheld
The lender told us that Ms D had taken out the debt-freeze product when she had cancelled her PPI policy - and that it “must have been discussed within the same call”. However, the lender did not have any evidence to support this. And it didn’t have any other evidence to show how the debt-freeze product would have been sold to Ms D.

When we looked at the terms and conditions of the debt-freeze product, we found that it could not be activated if Ms D’s income was reduced because of a pre-existing medical condition. We noted that Ms D had cancelled her original PPI policy for exactly this reason. So we thought that even if the lender had explained the details of the debt-freeze product to Ms D, it is very unlikely that she would have taken it out.

In these circumstances, we concluded that it was unlikely Ms D had been given clear information about the debt-freeze product. So we told the lender to refund all the payments she had made towards it, plus interest.

108/2
consumer believed he had been mis-sold PPI - but was actually complaining about a card protection policy

Mr B opened a credit card account in 2007. At the beginning of 2011, he noticed that he had been paying annual charges for a protection product he did not recognise. He rang his card provider to cancel the product, and also complained to them that he had been mis-sold this “PPI”.

The credit card provider rejected Mr B’s complaint. It told him that he had never had PPI on his account. Mr B was unhappy with this response. He was adamant that his statement said he had been paying annual charges for payment protection. So he decided to refer his complaint to us.

complaint resolved
When we spoke to the business, it told us that there definitely was no PPI on Mr B’s account - and it sent us evidence to show this. However, when we looked at the evidence, we noticed that although Mr B did not have PPI, he did have a card protection policy. The policy had been in place since he had taken out the credit card in 2007 - and he had been paying annual charges for it until he had cancelled in 2011.

We spoke to the business and said we thought that Mr B had simply confused card protection with payment protection. We also pointed out that he was simply unhappy about the product that had been added to his account. The business accepted this and apologised that it had not looked into Mr B’s complaint more thoroughly. The business offered to refund all the card protection charges Mr B had paid. It also offered to pay him an additional £100 to apologise for the way it had handled his complaint. Mr B was happy with this offer and the complaint was resolved.

108/3
consumer complains he was made to feel he "had to have" a debt-freeze plan

Mr L applied for a credit card in 2008. The credit card provider phoned him to tell him his application had been successful. During the call, Mr L agreed to add a debt-freeze plan to his account.

Mr L later complained to his credit card provider that he had been pressured into taking out the plan and that he had never wanted it. He asked the business to refund all of the charges he had paid.

The credit card provider rejected Mr L’s complaint. It said that the representative who spoke to Mr L had followed its phone script - and that he would have been given all the relevant information so that he could make an informed choice about the product.

Mr L was unhappy with this response, and referred his complaint to us.

complaint upheld
The credit card provider gave us a recording of the phone conversation between its representative and Mr L. We listened carefully to the conversation, and paid particular attention to the way the representative had explained and sold the product.

We noted that Mr L had initially said he didn’t want to take out the debt-freeze plan. He had asked for some time to think about whether he wanted it - and for the credit card provider to send him some more information before he made his decision. The representative told Mr L that he would get exactly the same information in writing as he was being given over the phone. And that if he took out the plan today, he would “obviously not be signed into a contract of any kind”. At this point, the call had been going on for some time, and Mr L seemed to be getting frustrated. He agreed to take out the plan - but it seemed to us that he had only agreed reluctantly.

We compared the information Mr L had been given over the phone with the information he was sent in the post - and we found that they weren’t the same.

We concluded that the credit card provider had acted unreasonably. The representative had ignored Mr L when he said he didn’t want the product. And she had given him misleading information - telling him that the written information he would receive would be exactly the same as the information she was giving him, and that he would not be signed into a contract. In fact, by agreeing to the plan during the call, Mr L had entered into a rolling contract with the credit card provider, which he would then actively have had to cancel.

We concluded that the credit card provider had failed to give Mr L clear and accurate information - and that if it had done so, he would not have taken out the plan. We told the business to refund Mr L all the charges he had paid, plus interest.

108/4
self-employed consumer complains that she should never have been sold a debt-freeze plan

Mrs L was a self-employed physiotherapist. When she took out a credit card in 2004, she also took out a debt-freeze plan, which would freeze interest and late payment charges on her account if she found herself in financial difficulty. Unfortunately, in 2009 Mrs L became ill and was no longer able to work. Her debt-freeze plan was activated and her account was frozen for two years.

In 2011 Mrs L went back to work and was able to make her payments as usual.

A year later Mrs L was talking to a friend. Her friend mentioned he’d heard that self-employed people should never have been sold payment protection products. So Mrs L wondered whether she had been mis-sold the debt-freeze plan - and she complained to her credit card provider. When the business rejected her complaint, Mrs L asked us to look into it.

complaint not upheld
We looked at the terms of the plan Mrs L had taken out. The terms said that she could activate the plan by showing “reasonable evidence” that she was no longer able to work. This included evidence showing that she was actively looking for work, or that she was receiving benefits - including those benefits available to people who are self-employed. Mrs L had successfully activated the plan in 2009 by doing exactly that.

We also found that Mrs L had been given clear and detailed information when she took the plan out, which had allowed her to make an informed decision about it.

In these circumstances, we concluded that the debt-freeze plan had not been unsuitable for Mrs L’s needs. We did not uphold the complaint.

108/5
retired consumer complains debt-freeze plan was not suitable for his needs

Mr W was a retired teacher. When he took out a loan in 2006, he took out a debt-freeze plan at the same time.

In 2012 Mr W complained to his lender that the debt-freeze plan had been mis-sold to him. He pointed out that he was retired when he took the plan out - and so it had not been suitable for his needs.

Mr W's lender did not uphold the complaint. It said that it had not advised Mr W to take out the plan - but had simply given him the information he needed to make an informed decision. Unhappy with the response, Mr W referred his complaint to us.

complaint not upheld
We often see cases where a consumer says a business gave them advice, but the business says it simply gave them information. We always look at the evidence to establish what actually happened - or where we can't be certain, what is most likely to have happened.

In this case, we needed to find out whether the lender had given Mr W advice. So we listened to a recording of the phone conversation between the lender's representative and Mr W. It was clear from the call that the representative had not offered advice or made a specific recommendation about the product - or its suitability for Mr W - at any point during the conversation.

Even though we were satisfied that the lender had not given Mr W advice, we still needed to establish whether it had explained the details of the plan clearly and accurately to him.

Having listened carefully to the call, we noted that the representative did clearly explain the features, benefits and cost of the plan.

She also highlighted the fact that the plan was optional and could be cancelled at any time. The representative explained to Mr W that he would receive some written information about the plan in the post - and that he should carefully read the terms and conditions to make sure the plan was suitable for him. Mr W had agreed to the plan based on this information.

We also noted that although Mr W was retired, he could still have potentially benefited from the plan. Under the plan's terms, it could be activated if he became ill, or if he experienced certain other unforeseen events that were nothing to do with a drop in income.

In these circumstances, we were satisfied that the lender had given Mr W clear information about the plan, and he had been able to make an informed decision about it. We did not uphold the complaint.

108/6
consumer complains that business refused to activate the debt-freeze plan on his credit card account

Mr P took out a credit card in 2009 and agreed to have a debt-freeze plan on his account. He was self-employed at the time.

Mr P tried to activate the plan in February 2011 when he became a full-time carer for his wife. The credit card provider asked to see evidence that Mr P was no longer working. He was asked to supply a P45 and to show that he was receiving Jobseeker’s Allowance.

Because Mr P was self-employed, he couldn’t provide a P45. And because of his age, he was not eligible for Jobseeker’s Allowance. But he did make a successful application for Pension Credit. Mr P then sent evidence to his credit card provider that he would soon be receiving Pension Credit.

But the credit card provider refused to activate the debt-freeze plan on the grounds that Mr P had not provided sufficient information to demonstrate that he was “involuntarily unemployed”. Mr P couldn’t see what more he could do - and he complained to the credit card company. When it turned down his complaint, he asked us to investigate.

complaint upheld
We listened carefully to a recording of the phone call during which Mr P had taken out the debt-freeze plan. We were satisfied that the information he had been given was clear and not misleading - and that the plan had not been mis-sold to him.

However, we did not think the business had handled Mr P’s request to activate the plan fairly. Under the terms of the debt-freeze plan, Mr P had to provide ”reasonable evidence” that he had become “involuntarily unemployed”. But the term did not specify exactly what “reasonable evidence” was.

We concluded that Mr P had taken all reasonable steps to supply evidence that he was involuntarily unemployed and in difficult financial circumstances in 2011. In these circumstances, we thought that his credit card provider should have activated the plan when Mr P had asked it to.

We told the business to put Mr P in the position he would now be in if the plan had been activated.

108/7
consumer felt the business had acted unfairly by not activating his debt-freeze plan

Mr A had become ill and was - temporarily - unable to work. He contacted his loan provider and asked it to activate the debt-freeze plan on his account. When the lender refused, Mr A complained. He subsequently referred his complaint to us. He told us that the business had increased the strain and pressure he was under - and had made his financial situation worse.

The business told us that although Mr A had made an initial request to activate his plan, he had not supplied all the information that it needed to assess whether the plan could be activated. The business said that it had written to Mr A and set out the information he needed to provide. It also said that it had sent Mr A more letters over the following three months - but had not heard anything more from Mr A until he made his complaint.

Mr A disputed that version of events. He said he had sent all the information he had been asked for by recorded delivery - but that he no longer had copies of the original documents he had sent to the business.

complaint not upheld
Mr A couldn't supply tracking numbers for the letters he had sent by recorded delivery. So we could not say for certain whether he had sent the additional information that his lender had asked for.

However, we concluded it was likely that, for whatever reason, the business had never received the information. The business sent us records from Mr A's account history. These showed that the business had spoken to Mr A several times - and explained why he needed to send the additional information.

The business had also written to him several times to remind him that under the terms of his debt-freeze plan, if he decided to ask for the plan to be activated he would need to supply evidence that he had experienced a 25% reduction in his income. The majority of these conversations and requests for information had taken place after the date Mr A had said he had sent the information to the business.

In these circumstances, we concluded that Mr A had not met the terms of his agreement. So we did not feel that the business had acted incorrectly or unfairly by not activating his debt-freeze plan.

108/8
claims-management company complains about mis-sold PPI - when consumer's product is actually a debt-freeze plan

Mrs E wanted to complain about the way she had been sold a “protection plan” when she had taken out a loan. She wasn’t sure how to go about complaining - and was worried that the lender wouldn’t take her complaint seriously. She decided to appoint a claims-management company to act on her behalf. The company complained to the lender on Mrs E’s behalf - saying that she had been mis-sold PPI.

But the information sent in by the claims-management company did not match the lender’s records for Mrs E’s account. The lender’s records showed that Mrs E had never had PPI on her account. However, the lender did establish that Mrs E had taken out a debt-freeze plan in 2009.

The lender investigated the sale of the debt-freeze product - and wrote to the claims-management company. It said that Mrs E had been given enough information to make an informed choice about whether the plan was right for her.

The claims-management company decided that the lender hadn’t supplied enough information to demonstrate that the plan hadn’t been mis-sold to Mrs E. So it decided to refer the complaint to us. It filled in the standard PPI questionnaire - saying that Mrs E was unhappy with the policy that had been added to her account.

complaint not upheld
We asked the lender to supply us with recordings of any phone conversations between its representatives and Mrs E from around the time she had taken out the loan. As we listened to the recordings, it became clear to us that the policy in question was in fact a debt-freeze plan - and not a PPI policy. Unfortunately, the lender’s letter to the claims-management company had not been clear about this - although we noted that the plan documentation did say that it was a debt-freeze plan.

We contacted Mrs E and the claims-management company to let them know we had established that Mrs E had a debt-freeze plan - and not a PPI policy.

In one of the conversations we listened to, we noted that an adviser had given Mrs E information about the benefits and the cost of the debt-freeze plan - and had explained that it was an optional feature that she could choose to add to her account.

We concluded that the lender had given Mrs E enough information to allow her to make an informed decision about whether to take out the debt-freeze plan. We also thought that the costs of the plan had been clearly set out during the phone conversation.

In these circumstances, we did not uphold the complaint.
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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.