Millions of policies, billions of pounds paid in compensation, and what feels like gazillions of nuisance calls – PPI has made a huge impact on our financial lives.
PPI – or payment protection insurance – was designed to cover loan repayments when policyholders fell ill, had an accident, or lost their jobs.
Up to 64 million policies were sold, mostly between 1990 and 2010, but a good proportion of them were actually mis-sold to people who did not want or need them, or who would not be covered.
Banks, building societies and other credit providers have paid an astonishing £36bn in compensation to those who were mis-sold PPI and made a claim. The typical payout is £2,000.
New claims end on 29 August, but the impact of the mis-selling scandal will be felt for years to come.
The compensation payouts – and how we spent them
Every time Michele Barker starts the engine of her car she knows that PPI fuelled her purchase. The 59-year-old, from Gravesend, had a PPI policy on a credit card for 20 years that would never have paid out.
After making a claim herself through the Resolver website, she was awarded compensation of £22,500.
“It was a jaw-dropping amount,” she admits, with the total bulked up by the interest that providers are duty-bound to add.
“I put some of the money towards buying a boring, new Vauxhall Corsa, and it meant my husband could buy a new van as his had been stolen.”
Mrs Barker says PPI was sold “at a time when financial services were not as diligent as they should have been”, and that there were clear rewards for them to make the sales.
For Rachel Allan, the loan insurance was clearly a “ridiculous” product, and old bank documents revealed that the cost used to make up a big chunk of her loan repayments 15 years ago.
Even so, she was still shocked to receive £3,700 in compensation from her bank – money which is now tucked into savings ready for some home improvements.
“At least the banks acknowledged what they did,” the 40-year-old from Edinburgh says.
Simon Shipley has a long-term health condition, would never have been able to claim on PPI policies, and yet was sold the insurance on a mortgage and two loans.
Some of the policies ran for more than a decade. The result – compensation in total of more than £30,000 which is now set aside for a rainy day.
“It is shocking that they let it continue for so long,” says the 60-year-old, from Tring.
The campaigners – and our rights as consumers
It was when PPI was mentioned on youth TV hit Love Island that Guy Anker, managing editor of Moneysavingexpert, realised that the scandal had put consumer rights firmly into the mainstream.
“PPI has brought claiming and big-ticket money-back consumer rights into focus,” he says.
Moneysavingexpert, and its founder Martin Lewis, were at the forefront of the campaign for PPI compensation and the subject has been one of its biggest concerns for visitors to the website ever since.
Mr Anker says that the scandal has been at the heart of the public’s distrust of banks – in a more tangible way than the banking crisis of a decade ago.
Martyn James, of consumer website Resolver, says PPI was was an example of “a dramatic loss of trust”. Now, he says, consumers have “a willingness to question former symbols of authority”.
“We’re seeing whole new areas of complaint around loyalty charges, exit fees, data security and more being made – areas where people didn’t complain before because they thought there was no point. As a nation we are no longer willing to put up with being treated badly and are increasingly vocal about it,” he says.
Yet the PPI compensation scheme has been muddied, according to Mr Anker, because claims companies have “acted so appalling, they have created a scandal in itself”.
Claims management companies (CMCs) make claims on behalf on consumers, but then take a cut of any compensation payouts – as much as a third in the past.
“Some people feel that PPI compensation is a scam because they have been spammed so much by the claims companies,” Mr Anker says.
The claims firms – for better or worse?
Everyone has received a call, text, or email about claiming PPI. A whole industry grew up, with firms offering to make claims for PPI compensation payouts on consumers’ behalf.
Some bought leads from “introducers”, who sent out masses of “alerts” encouraging people at times to claim a fictitious figure.
Critics argue that CMCs were never needed because people can make their own claims, but the companies say many of these people would never claim at all.
“The majority of consumers that our members win compensation for are almost always unaware that they were ever mis-sold the product,” says Simon Evans, chief executive of trade body, the Alliance of Claims Companies.
Mr Evans says the legitimate claims industry welcomed “robust regulations”. In July, last year the Ministry of Justice limited their cut of any payout to 20% plus VAT, and banned upfront fees, which Mr Evans says “only disreputable firms ever used”.
Claims firms’ methods remain under heavy scrutiny, but Mr Evans says the payouts they have won for consumers have been described as a “people’s QE”, in reference to the money printing policy of the Bank of England.
The deadline for compensation claims, he argues, is premature, will have a detrimental effect on the UK economy, and mean that billions of pounds to which PPI policyholders were entitled will never be paid out.
“Finally, let’s not forget the forgotten story here – that CMCs have created and maintained thousands of well-paid and secure jobs for many thousands of people across the UK, often in areas where these jobs, especially for young people, are hard to come by,” he says.
Those jobs, and employment for their suppliers as well as claims-handling bank staff, are now disappearing, he says.
The perpetrators – more pain to come
The deadline may be arriving, but there is plenty more for the banks to deal with.
Collectively, they have set aside billions of pounds more to cover compensation that has yet to work through the system. That process could still take years.
Campaigners argue that banks fought tooth and nail not to be forced into making compensation payouts at all. They engaged in a long, and bitter, legal battle to prevent a review of past PPI sales.
Lloyds was the first to budge in May 2011 after the legal battle was lost, inviting customers who believed they had been mis-sold PPI to get in touch.
But more recently, there were complaints from senior figures that people were taking a bet on getting money back, even though the last official figures show 75% of PPI complaints have been upheld.
John McFarlane, when he was chairman of Barclays, said it an interview last year that PPI had “turned portions of Britain into fraudsters”.
UK Finance, the banking trade body, is more diplomatic. “The industry has worked closely with the [regulator] to ensure PPI complaints are handled fairly and consistently,” a spokesman said.
“The regulator’s deadline for PPI complaints has provided additional clarity for consumers, with the accompanying awareness campaign intended to prompt action and help ensure that customers who deserve compensation receive it.”