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Tuesday, June 9, 2015

PPI (not Policy Proof of Interest) ~ Payment Protection Insurance

They are no longer legal -  ‘policy proof of interest’ – [PPI] – in Marine Insurance parlance, a proviso  whereby the underwriter agrees to dispense with all proof of insurable interest with the policy being stamped accordingly ! ...... in modern day context, it is obsolete and technically unlawful and not enforceable in law.  But till a few decades ago, policies marked PPI were in existence before banned by Lloyds, by which time, they had become crude bets.   There reportedly were policies for setting out the global gross tonnage loss – and pay out  when that was reached or exceeded.  

PPI would also mean ‘Payment protection insurance’-  an insurance that will pay out a sum of money to help one cover  monthly repayments on mortgages, loans, credit/store cards or catalogue payments if one is unable to work for certain reasons covered by terms of  policy, such as death, illness or accident, or insured person becoming  unemployed through no fault of your own.  This PPI is in someways a Credit insurance [credit protection insurance], a product available in UK market that enables consumers to insure repayment of loans if the borrower dies, becomes ill or disabled, loses a job, or faces other circumstances that may prevent them from earning income to service the debt.  Although the policy is purchased by the consumer/borrower, the benefit paid in the event of a claim goes to the company that extended credit to the consumer.

PPI usually covers minimum loan (or overdraft) payments for a finite period (typically 12 months). After this point the borrower must find other means to repay the debt, though the period covered by insurance is typically long enough for most people to start working again and earn enough to service their debt.  The Insurers would pay the monthly repayments [rather a portion] and for credit cards, this insurance usually only covers the minimum repayment amount (2% to 5% of the full amount owed) and only for a limited period of time.  Some policies have a time excess too, and would pay only after a certain number of weeks.   With a personal loan, the cost of Payment Protection Insurance is usually around 10% of your loan repayment.

There is news that Lloyds has been  fined £117million over PPI mistakes - but its chief executive is docked just £350,000 in bonuses.   MailOnline reports that Lloyds has docked just £350,000 in bonuses from its £11.5million-a-year boss despite a record penalty  for mistreating its customers. In another day of shame for Britain’s biggest bank, it was fined £117million for rejecting complaints from people mis-sold payment protection insurance.  Lloyds, which has to pay £490million to affected customers, said it had clawed back £2.65million from 14 senior executives, including the £350,000 from chief executive Antonio Horta-Osorio; but a leading Tory MP said ‘the punishment did not fit the crime’ because the fine would barely dent Mr Horta-Osorio’s finances.  ‘This is a paltry sum which is extraordinarily affordable for someone earning £11.5million a year,’ said Mark Garnier. The penalty imposed by the Financial Conduct Authority is more than twice the size of the next biggest retail fine imposed on any firm.

As part of the settlement, the state-backed lender is compensating 326,000 customers refused PPI pay-outs. They will receive £1,495 on average.  The authority revealed that Lloyds used 7,000 complaints-handling staff to stonewall customers who had been ripped off. The tactics included failing to investigate cases properly. The problems occurred between March 2012 and May 2013, during which time state-owned Lloyds received 2.3million complaints about PPI and rejected almost four in ten. After being forced to reopen these complaints, Lloyds found that 326,000 were unfairly rejected.

Lloyds chairman Lord Blackwell is quoted as saying: ‘We accept the FCA’s findings and apologise to those customers who were impacted.’ Lenders have set aside around £25billion to compensate customers who bought PPI.

In another incident, a customer Bob Haywood earned a  payout of just three pence! Curiously, Bob Haywood was told he was eligible for damages - and then told he owed 0.015 pence tax on his three pence payout.  According to the customer, he had  no intention of ever putting in a claim for the mis-selling of Payment Protection Insurance (PPI) in the first place.  When PPI was all the rage in the 1990s, he took one though was apprehensive of whether there was any real protection at all.    He was  in a salaried job with up to 12 months’ security if he became  sick or was injured, so he had little to fear.   There had been ambulance-chasing PPI claims firms cluttering up the TV ads, and incessantly on the phone to sign up would-be beneficiaries.

Claimants were all assured they could receive a tidy old sum – £28,000 was the biggest payout  that he heard  – if they jumped on the bandwagon. He was certainly shaken when he received a letter from Lloyds Bank in June 2014. The letter invited him to submit a PPI claim if I thought I had been mis-sold. The claim was rejected by Lloyds Bank on the premise that he had no PPI – though he had no evidence of having taken out a PPI policy, he relied on bank’s assertion that he did. 

Then,  he  received a telephone call from a Lloyds PPI investigator who put  through a 45-minute interrogation about the  lifestyle and financial circumstances.  The inquisitor reluctantly disclosed that he had a  PPI on specified dates between 2005 and 2007 although he couldn’t – or wouldn’t – say under what circumstances it had been sold,  by whom or when.  The customer was not expecting a windfall or a Caribbean cruise, but expected a modest £100 to £200 – and when the letter from Lloyds bank came stating that claim is upheld, he was happy. But the letter only read :  As a final response I’d like to offer you a payment of £0.03 to put you back in the position which you would have been if you had not purchased the policy. To make a farcical situation even more comic, 3p was taxable, that he owed Her Majesty’s Revenue and Customs (HMRC) the princely sum of 0.015p.

The customer said, he won’t be cashing the prized possession – but will  frame the cheque as a symbol of pointlessness, a total waste of time and as an epitaph to Britain’s barmy banking industry.

With regards – S. Sampathkumar

9th June 2015.

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