Payment Protection Insurance (PPI) is a form of cover that a borrower will have to pay to a bank or lending institution when taking out a new credit card or borrowing a loan with that lender. PPI became a very popular financial product for many banks in the 80s and 90s. It was used as a way to generate additional profits in addition to the income they get from loan and credit card interest.
In the 80s and 90s, customers taking out loans with banks had no choice but to also take out PPI insurance. The bank staff members were said to be trained to ensure that everyone who took out a loan was given the option to take out the PPI. But in reality, bank staff were trained to make sure that most of the people who wanted to borrow, also took out PPI whether they wanted to or not.
How PPI was Miss-Sold
In the 80s and 90s, most lenders did not have the benefit of the internet or the ability to apply for credit online. If you wanted a loan in those days, you had to inquire from a Lender, usually a bank. Most of the time, the people who got the loans were so grateful to the lender they, for the most part, ignored the Payment Protection Insurance added to the loan facility without their knowledge.
The process of lending also encouraged the miss-selling of PPI. When a customer walks into a bank seeking a loan, the manager would ask them how much they want to borrow and how much they can afford in repayments every month. The customer would give a number and the manager would calculate the loan over a certain period, including PPI. The customer would, therefore, be happy with the calculation and the manager didn’t have to “sell” the PPI-the customer was only too happy to buy it.
The problem is the cover was mostly irrelevant since most people who took the cover were unlikely to make a claim. Even if they fit the criteria, they were not likely to claim PPI successfully as most of the exclusions would apply.
By the end of the 90s banks and other lenders had started to apply the product to all forms of borrowing by the 2000s, borrowers were paying PPI on everything from sofa finance, car hire purchase as well as secured loans and even mortgages. This meant that by the late 2000s nearly everyone applying for financing was touched by PPI.
What PPI Should Actually Be Used For
PPI is actually meant to cove people who fall into problems such as illness, disability, death and loss of employment and are therefore unable to make their payments. Only about 10% of people who applied for loans in the 80s, 90s, and 2000s could make a claim to the policy and be accepted. For this reason, the cover is largely irrelevant and mostly serves to line the bank’s pockets.
If you’re currently looking for the best PPI companies to work with, we recommend Maple Financial.