Not All PPI Is The Same
There are two types of PPI or Payment Protection Insurance – ‘regular premium’ and ‘single premium’. Regular premium is where the cost of the PPI is added to your monthly payments. Single premium is where the total cost of the insurance over the duration of the loan is added to the amount borrowed. This is not a good thing, to put it mildly:
Firstly, because the entire cost of the insurance is added to the loan at the start, the borrower is then paying interest on the cost of the insurance. This can often be more than the interest on the loan itself. If you have a single premium policy, would you have agreed to it knowing that it more than doubles the interest you’re paying? As a rule of thumb, the total value of a PPI policy is about 20 – 25% of the value of the loan, although this can be as high as 70% for some lenders. On a £10,000 loan, this means paying between £2,000 and £7,000 extra for the PPI.
Secondly, if the loan is repaid early, or the borrower re-finances after a couple of years, then they will have paid to insure a loan that no longer exists. Do you think that the lender at this point says “Hold on dear consumer, we owe you a refund for the unused part of your PPI”?
The Financial Services Authority has handed out millions of pounds in fines to PPI sellers for poor sales practices, including the fact that even when consumers realise they are owed a PPI refund for having settled a loan early, they are often unable to claim it due to the small print.
Thirdly, many single premium policies only cover a fixed number of years, leaving the borrower unprotected towards the end of their loan. This is often not explained to them.
The FSA emphatically agreed that single premium policies were not a good thing and on 23rd February 2009 wrote an open letter to the CEO’s of all companies selling PPI, requesting that they stop selling them as soon as possible and certainly no later than 29th May 2009.
So the good news is that there should be no more single premium policies being sold. Unfortunately millions of single premium policies were foisted upon unwitting victims over the years before the FSA took its decisive action.
Don’t let the banks get away with it. Read The FSO Letter HERE
http://www.fsa.gov.uk/pages/Library/Communication/PR/2008/112.shtml
http://www.fsa.gov.uk/pages/Library/Communication/PR/2009/012.shtml