What is single premium Payment Protection Insurance

Payment Protection Insurance is insurance intended to cover loan, finance or credit card payments in case you are made redundant or are too sick to work. More commonly referred to as ‘PPI’, it is sometimes referred as ‘payment cover’ or ‘Accident, sickness and unemployment cover’ (‘ASU’ abbreviated).

In itself, PPI isn’t a bad product. However, claims have been made due to various mis-selling practices by lenders, agents and brokers which have long been rife across the financial services sector for about the last 15 years. The Financial Services Authority, or ‘FSA’, issued a new handbook at the end of 2010, identifying the most typical mis-selling practices. The FSA described these practices as ‘failings’ and laid down guidelines for lenders to compensate those customers who were mis-sold PPI.

The banks initially challenged the legality of the FSA’s measures by way of a judicial revi

Among the worst mis-selling practices related to ‘single premium PPI’, which was banned by the FSA in May 2009. This is where the policy was effectively payable by way of a lump sum, being added onto the financial loan as a ‘one-off’ premium at inception.

Lenders and brokers often recommended single premium PPI without taking reasonable steps to ascertain whether this was suitable for the customer. In fact, single premium PPI was a particularly bad deal for the consumer for several reasons.

Firstly, it was frequently automatically included in the overall loan quotation. Sometimes, this meant that the consumer was completely in the dark over the presence of the insurance policy. Customers ought to have been told about the policy from the outset and had the price of the policy told to them separately to the overall cost of the loan.

Secondly, the product was poor value. Less expensive PPI was usually available elsewhere, but customers were rarely informed about this. In fact, they had been regularly given the impression that the product was compulsory, whereas, in fact, it had been optional.

Thirdly, customers would frequently not be entitled to a pro-rata refund in the event that the loan was repaid early. Put simply, the customer might have purchased payment protection throughout the term at the start. However, if they re-financed at some stage throughout the term, they would not have been allowed any rebate of the PPI for that remaining period.

This type of PPI policy was clearly unsuitable for customers who had been likely to re-finance during the term, or who had been due to receive some dividend, such as inheritance, enabling them to repay the remaining balance. However, the absence of pro-rata refunds was seldom revealed to customers, effectively providing them with little choice in the matter. Brokers often simply did not make enquiries as to the chances of the money being repaid early, or the need for flexibility generally.

Fourthly, lenders frequently did not disclose to the customer that single premium PPI would be added to the amount provided under the agreement, or that interest would be payable on the premium. This often made the loan considerably more expensive than the customer realised.

Finally, the length of the cover for single premium PPI was often shorter compared to term of the loan itself. Customers were rarely advised of this fact, whereas they ought to have been given the consequences of the mis-match explained to them. For example, in the event the loan was for five years, however the duration of cover was just for three years, the customer would have been ineligible to claim if they were made redundant in the fourth or fifth year of the loan. Many customers were not aware of this. Essentially, single premium PPI was the most glaring example of a bad product for the consumer within the PPI market. It is also the area in which mis-selling practices were most common and also the most grave. It was for these motives that the FSA banned the sale of single premium PPI alongside loans.

If you took out a single premium PPI policy, it is very likely that you will have a strong claim for a refund. Since the whole premium was front-loaded, interest would have been charged on the entire PPI component of the product from the start. This will make the interest element of your claim substantial.

You need to be aware that if, were it not for the mis-selling by the lender, you would have decided on a different sort of PPI policy (for example, one payable by regular monthly instalments) you will only be entitled to reclaim the gap between your single premium PPI policy and the policy that you would have otherwise bought. This may limit the total amount of your compensation.

If you feel that you would not have obtained any type of PPI were it not for the mis-selling, then you need to make this clear when generating your claim. In some instances, PPI of any sort would have been entirely inappropriate for the customer. For example, you might have been unemployed or had a pre-existing medical condition, causing you to be ineligible to make a claim on the policy.

Single premium PPI was the worst illustration of mis-selling in the PPI market. However, there are numerous other instances of mis-selling practices by lenders or brokers. You may be qualified for a full refund of the PPI premiums, plus interest.

For additional guidance on mis-sold RBS PPI claims or any other financial institutions and banks visit PPI Claims Online

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