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Sharing our insight with our customers – highlighting and making sense of the issues we’re seeing – is a fundamental and ongoing part of our work. And as we explained in our annual review, payment protection insurance (PPI) is one area in which we’ve noticed a development over the past year – with complaints becoming increasingly entrenched.
One possible cause we’ve identified for this is the confusion that exists around how different types of PPI policy – and PPI complaint – differ from each other. So we asked Richard Thompson, lead ombudsman in PPI, to explain why there’s more to PPI than meets the eye.
Well, yes and no. It’s true that we often see similar issues being raised when people tell us their PPI was mis-sold. But there are also many differences. Businesses and their sales processes, the type of policy involved, and the consumers who were sold them all combine to make very individual situations that we have to unpick.
And although our experience of thousands of PPI complaints has allowed us to set out some key principles for sorting them out, considering the individual facts and individual circumstances remains the heart of our approach. This is just as important for PPI as for any other area of our work.
It’s fair to say that some media coverage – and the inevitable text messages and daytime TV adverts – could lead people to assume that all PPI is the same, and that all PPI was completely useless and sold under dubious circumstances.
But our experience is very different. As we pointed out in our annual review,published last month,the proportion of complaints where we agree a policy was mis-sold ranges from 2% to 97% - depending on the type of policy and the business involved. Yes, 99% of the PPI cases we see are about the sale of policies. But each customer, and what happened to them, is unique – and we must reflect that in our how we resolve each complaint.
Unfortunately, this “common wisdom” about PPI can lead to confusion – and frustration – when we don’t ultimately uphold a complaint that someone thought they were sure to “win”.
There are three areas in particular where we’re seeing some confusion. There are complaints about mortgage PPI (MPPI) and where the PPI was sold by a smaller business. .And also complaints where the business has offered to pay compensation – but where the consumer is unhappy or unsure about the amount.
If you put a PPI policy and an MPPI policy side by side, you’d find a lot of similarities. But our approach looks beyond the small print. We look at the wider sales practices, the accompanying documentation, and what actually happened at the point of sale. Only then can we decide whether or not a business let their customer down.
Taking out a mortgage is probably the largest long-term financial commitment that many people take on in their lives. When you look at it like that, it’s understandable why some homeowners might be attracted to the idea of protecting themselves against missing repayments if they became ill or lost their job. Perhaps more so for a mortgage than for many of the other credit products PPI might be sold with – say credit cards or smaller loans.
Many of the PPI complaints we see turn on whether the seller explained clearly how the policies worked. And when it comes to MPPI, we generally find that sellers provided better information and quality of advice than sellers of other forms of PPI.
Another difference is the cost. We often find MPPI policies offered better value – and were more flexible – than other types of PPI. But the affordability of the policy is just one aspect we look at when we’re considering a PPI complaint.
It’s true that the overall uphold rate for MPPI is lower than for other forms of PPI. But just because we find that MPPI policies generally represent better value for money – and are generally better-explained to consumers – doesn’t mean things don’t go wrong.
Where we do uphold an MPPI complaint, it’s often because there were restrictions relating to self-employment or pre-existing medical conditions that limited the level of cover. And these restrictions weren’t explained properly to consumers who were self-employed, or who had pre-existing medical conditions. This is an issue we see in complaints about other types of PPI.
We also see cases where consumers weren’t told that the policy was optional – thinking instead that it was part and parcel of the mortgage. It’s in circumstances like these that we tend to agree MPPI has been mis-sold.
Cases where PPI was sold by a smaller businesses can look quite different to those cases involving a large bank or insurer.
Take car finance, for example. Most PPI policies provide cover in the event of accident, sickness or unemployment. However, many PPI policies we’ve seen sold by car dealerships weren’t “standard” PPI. Often, they had cover added, like life or critical illness insurance – or had cover removed, like protection for unemployment. This meant that these polices potentially offered a greater level of flexibility – to both consumers and sellers.
Though we do see quite a lot of PPI complaints involving car finance, we also see cases where PPI was sold alongside retail credit – for example, with a sofa or a TV. A main difference between these policies and “standard” PPI is the relative cost – and the benefits they could potentially provide.
Policies sold with retail credit are generally more expensive than other types of PPI – but that often reflects the higher level of benefits they offer if someone falls ill or loses their job. It’s important we look carefully at the relative costs and benefits of a policy when we’re considering whether it’s likely a consumer would have taken it out.
Well, it’s not always straightforward. For example, the consumer’s wider financial situation can have a big impact on how compensation, or “redress”, is paid. We see disputes involving a business’s “right of set-off” – that is, whether they can use the compensation to reduce another debt the consumer has with them – and also about whether account fees and charges have been refunded.
Comparative redress is effectively paying someone the difference between the cost of the PPI premiums they actually paid, and the amount the business thinks they should have paid for a more suitable, but less expensive policy. It’s sometimes also called “alternative redress”.
So, for example, someone might have taken out a loan that had a “single premium” PPI policy sold with it – that is, where they paid the full cost of the policy upfront and then paid interest on it over the term of the loan. That can be a very expensive form of PPI.
When the business looks into a complaint about the sale of a single-premium PPI policy, they might accept that it was mis-sold. But the business might also conclude that the consumer still wouldhave wanted cover for their loan. And that if the single-premium policy had been properly explained, the consumer would probably still have taken out PPI – but a policy with cheaper monthly payments instead. In these circumstances, the business might offer the consumer the difference in cost between the two policies.
Proportionally, the number of cases is quite small. But we know a lot of people are confused by comparative redress – and are asking us whether it’s fair or not. So we expect that we’ll start to see more complaints reaching us.
Businesses are entitled to offer comparative redress under the PPI complaint-handling rules set out by the regulator, the Financial Conduct Authority (FCA) – but only in specific circumstances. If someone thinks the business has got it wrong or they’ve been treated unfairly, they can talk to us and we’ll look into what’s happened – to make sure the outcome is fair on both sides.
The “right of set-off” means that if someone makes a successful PPI complaint, any compensation they’re entitled to could be used to reduce another debt they have with the same business. Assessing whether or not this is fair can be complicated – though we do agree it’s fair in certain circumstances.
The issue of fees and charges mostly crops up in complaints about PPI sold alongside credit card accounts. In these cases, our job is to decide whether, when calculating compensation, the business has taken into consideration any fees and charges the consumer incurred. And then whether those charges would have applied if the account hadn’t had PPI.
If we decide fees or charges were incurred only because PPI was added to the account – and wouldn’t have been charged if there had been no PPI in place – we generally tell the business to refund those charges as part of the overall redress package, paying interest where that’s appropriate.
As far as we can, we’re trying to help businesses and claims management companies understand where we’re coming from. And not just once we’ve formally stepped in to a complaint. Ideally, we don’t want things to reach that point.
For the bigger firms that sold PPI – as well as the large claims management companies – that means having conversations as early and as often as possible. We share information about trends in the complaints we’re receiving – including misunderstandings we’ve spotted that we think need clearing up.
It’s about cooperating, and making sure our respective processes are running smoothly. When you consider the number of people involved in PPI complaints against larger businesses – and in those being handled by claims managers – it’s clear why this is so important.
And we’re here to support smaller businesses, too. As well as our online technical resource, our technical advice desk can answer any questions about our approach – or give guidance on tricky complaints that we’re not yet involved in. It’s available to consumer advisers and claims managers, too. We’ve also been explaining our approach face-to-face at practical workshops aimed specifically at smaller businesses who sold PPI.
So yes – we have been spending time working through issues. But if it means a customer gets an answer sooner, then it’s time well spent – after all, that’s beneficial for everyone involved.
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.