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Payment protection insurance "is probably the biggest scandal in financial services after pensions and endowments," according to Richard Mason, a director of insuresupermarket.com.
He should know. He used to work for a bank selling PPI-cover which promises to pay personal loan, credit card and mortgage instalments in some conditions if the borrower is ill or made redundant.
Today he warns of a new money making scheme.
"You pay for PPI with a lump sum up front. This goes on to the loan and interest is paid on it. Now some banks are advising customers to consolidate existing loans part of the way through the loan period and then borrow more. But they don't say the PPI plans in old loans expire rather than move to the new loan. Then the banks persuade customers to take out further PPI," he says.
His views add further support to Jobs & Money's campaign against the selling of inappropriate and overpriced cover to desperate borrowers. PPI plans add around 30% to monthly repayments.
In March, Jobs & Money revealed how Barclays takes around £350m a year in PPI premiums, yet pays only some £90m in claims. As few as 5% of policies end up with a claim.
In April we told of huge profits made by St Andrews Group, a specialist PPI firm wholly owned by the Halifax-Bank of Scotland group.
And all this year we have highlighted how policies are sold to those for whom a claim for redundancy is improbable or impossible such as the self-employed, temps, teachers, nurses and the police.
Mr Mason tells how his team would "scare loan applicants with clever statistics on the prevalence of illness and unemployment. You never asked them their job or discussed whether they could pay if they lost work or fell ill," he adds.
NatWest (not the bank he worked for) says: "More than 2m people in the UK have been off work for six months or more, at some time, due to an accident or sickness." But this statistic does not tell how many had loans, how many could cope, or how many claimed on PPI.
According to banking union Amicus-Unifi, there is "an awful of of pressure on staff to meet sales targets. They are incentivised with bonus plans."
Jonathan Trafford from Tyne & Weir, took a £19,919 loan from Northern Rock in August 2002. He was sold a £8,657 PPI which was added to the loan. Interest on the PPI works out at £4,041 - a total PPI cost of £12,698.
Mr Trafford is a police inspector. "I was told I had to have the insurance to get the loan. And I am prepared to stand up in court and swear this. No one is ever made redundant in the police and Northern Rock knew what I do for a living," he says
Northern Rock says: "For many borrowers PPI can provide peace of mind and valuable protection against unforeseen circumstances" It denies telling Inspector Trafford he could not have the loan without PPI. But it will not discuss his case further as it is at the Financial Ombudsman.
Jobs & Money asked NatWest how its staff advised on whether someone's personal situation made it difficult to claim for redundancy. A spokesman said: "Cover is not provided based on occupation but whether there is a need and subject to eligibility. I'd be quite surprised if you were to find anybody in any job who felt immune to illness, injury or redundancy."
He added: "The employed, self-employed, contract workers, temporary workers and those working part-time may be eligible subject to the above."
But according to Mr Mason, other than the employed, it is virtually impossible to claim on PPI redundancy cover.
"What is the point of a policy where people either cannot or will not claim? If they want to buy insurance, they would be much better off with a critical illness plan," he says.
He is now calling for a wealth warning, saying loan application success does not depend on a PPI and that similar cover outside the bank can be much cheaper.
Mr Mason concludes: "Most of the sellers really don't have a clue whether you can claim or not. If customers complain after the two-week cooling off period, banks blame borrowers for agreeing to buy. Few complain further."
How the cost of a loan mounts up
With the cost of borrowing at exceptionally low rates, banks are under increased pressure to make their money up elsewhere - and the number one source appears to be by selling borrowers insurance on their loans.
Richard Mason, director of personal loans at money supermarket.com says: "With rates so low, the lenders only need 1% of borrowers to default and their profits will disappear. PPI is very profitable source of income for the banks - 80% of the cost of the policy is straight commission.
"When I worked for one of the big banks several years ago, I was told to ring up people who had applied for loans and tell them it had been held up for a few days because there was no protection insurance in place. As soon as we said it could proceed immediately if the customer bought a policy costing just 30p a day, three-quarters took it out."
According to our research such policies can add more than £1,000 to the amount you will have to repay on a £5,000 loan.
Someone taking out a £5,000 loan over three years with the AA - and not taking insurance - will pay back a total of £5,448.
However, if they take out the AA's top loan insurance that figure rises to £6,483 - an increase of almost 20%. This also takes the real APR rate from the advertised 5.8% to more than 17%, assuming no claim is made.
It's a similar story at most of the other so-called cheapest providers.
The sales process is further clouded by the fact that most loan providers offer several insurance products featuring different levels of cover in the event that the person suffers an accidents or is made redundant. Both the AA and Direct Line are among those offering three different policies - the higher the supposed level of cover, the greater the monthly repayments.
A spokesman for AA said the reason its monthly repayments are higher is that the insurance it offers is one of the most comprehensive policies in the market place, and even offers cover to the self-employed.
"We do advise customers that they take it, but they don't have to."
Miles Brignall
Case study
Carrie Pycroft did not know it at the time, but there was no way she could claim on the unemployment clauses in the payment protection insurance her local Barclays branch sold her along with a loan.
Carrie, from Christchurch, Dorset, was already unemployed. She had only done casual or agency work in call centres.
"It was in April. I was broke and sleeping on floors with friends. One of my friends suggested we borrow from a bank to get some cash to tide us over until we could find work.
"We went to our local Barclays and had our interviews together. She was turned down as she already had big debts but I managed to get £2,000 over five years at 21.9%," says Carrie, now 20.
"I told them I was out of work at the time. They didn't check that out, or where I was really living, or that I owed big money to Vodafone which I was paying back to Vodafone's lawyers. They just wanted to lend me money. It was good."
The basic price of the loan was just over £55 a month - a total of around £3,307 over the five years.
But once the Barclayloan Protection cover was added, monthly payments soared to £75.20 a month. The total she would have to repay jumped to £4,512 - more than £1,200 extra.
Adding in the insurance costs gives the equivalent of a 38% interest rate.
"I made it clear that I wanted to pay back as little as possible because I wasn't earning. So I didn't want to pay for insurance," Carrie says. But it was added on.
The Barclayloan Protection cover would only have been cost-effective had she managed to claim for more than 22 months out of work or not earning through illness. But Carrie would have had first to find a permanent job and then stay there at least six months before the cover kicked in.
With some prompting from her mother, Carrie protested to Barclays. After some time, the bank wrote: "As you did not exercise your right to cancel the insurance, this is deemed as acceptance of the policy... I feel there is little of further value I can add."
Then Barclays sent her a mailshot for yet another loan - at 22.9%.
However, after Jobs & Money intervened, Barclays had a change of heart. It is "confident" there was no mis-selling but "to bring this protracted matter to a swift and amicable conclusion" it has cancelled the plan and will refund the £586 policy cost plus the interest paid so far on that amount - a total of around £660 when it is calculated.
"I've got a full-time job now," says Carrie. "And I'll never touch loan insurance again."
'We can't claim this side of hell freezing over'
Nationwide Building Society sold an NHS nurse and her self-employed carpenter partner costly payment protection insurance on a home loan.
But it made no checks on how suitable the cover was. "Neither of us would be able to claim this side of hell freezing over," says critical care nurse Stephanie Thompson, from Bexleyheath, Kent.
"We were sent these forms with our loan in 1999. The implication was we had to sign everything before the loan could go forward," she says.
Stephanie can only claim if she suffers compulsory re dundancy and is out of work for at least 30 days. She cannot claim if she is sacked for misconduct.
"I asked Nationwide for examples of redundant nurses. It did not answer. There are ward and bed closures - I've been involved in these. But the medical staff are simply redeployed elsewhere. We've wasted £1,600 on this."
The only way her self-employed partner Roland could claim would be if he stopped working altogether.
"The plan won't pay if work becomes scarce. And he can't just quit. Nationwide made no effort to ask us what we did to check if it was selling correctly," she adds.
In October, Nationwide offered to review the case. But it still said: "No one could predict the employment situation for nurses."
"You only get the small print if you ask specially for it and then wait," says Stephanie.
The couple have now cancelled their PPI cover, moved their mortgage and home insurance from Nationwide, and closed their Isas and savings accounts. They will take their case to the Financial Ombudsman, claiming mis-selling.
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