Sometimes things created for good start harming the system themselves. The same is happening with Payment Protection Insurance policies. The business of selling PPI has become quite lucrative for some banks and financial institutions. PPIs were created to cover the monthly repayments of loans and mortgages for people who fell short of income to pay their premiums. However, they soon became expensive, ineffective, mis-sold and inefficient because of the numerous scams. In this article we’ll try to find out the history of PPI scams and how they became so common in the marketplace.
According to critics, the timeline of these scams dates back to 1990s because since then PPI policies are being sold along with mortgages. Various banks of Britain started selling these policies aggressively for their own profit. In 2004 it was reported by British Newspaper “The Guardian” that several banks were returning only 15% of their PPI income to clients, which makes PPI more profitable than the car or house insurance business for banks.
It was discovered that two large banks of the UK named Barclays and HBOS were making huge profits from PPI policies. The following year an inquiry was set up due to intense pressure of Citizens Advice. The following facts were found in investigation:
These policies were quite expensive, often adding up to 20% to the amount of loan (and in worst cases, they used to add over 50%).
These policies were ineffective too because the rules were structured in such a manner that payout was restricted to severely ill people.
Banks also used to mis-sell these policies to wrong people (i.e. self employed) and sometimes they also used to sell these policies as “essential” with the loan itself. A lot of people complained that they were issued the PPI policy while they didn’t even ask for it!
PPI policies had also become inefficient to repay the premiums. Due to lengthy delays and complicated claim procedures clients were bound to pay the premiums from their pockets.
The Financial Services Authority started imposing fines on mis-selling of PPI in 2006. Regency Mortgage Corporation, Liverpool Victoria, Alliance & Leicester and many other financial institutions were fined heavily for selling PPI to consumers without their knowledge. FSA also banned the worst type of PPI, which was known as “single premium PPI.” This PPI was worst because banks used to add its amount to the total loan amount at the start.