Guest Comment: PPI was mis-sold but isn't bad

The widespread mis-selling of payment protection insurance (PPI) is well-known but Shane Craig (right), managing director of independent provider Paymentcare.co.uk, says the product shouldn't be demonised.

PPI has featured heavily in the national media in recent weeks as several high street banks and building societies have put their hands up to mis-selling.

They sold the insurance on loans, credit cards and mortgages – to cover people when they couldn't work due to redundancy, accident or illness – knowing many they sold it to probably didn't need it, or did not qualify for payouts under the terms of the small print.

But that doesn't mean the product itself is bad, and the bad press should not put people off PPI even though the way it was sold by many was wrong.

These major lenders were caught bang to rights. But it was a long journey, and they were only properly rumbled following an investigation which took many years.

So what's the future for PPI? Is it still relevant? Who needs it?

In the current economic climate, we hear almost daily of major job cuts, so PPI serves as a useful back-up for those with mortgages and the usual domestic outgoings to cover.

Assuming you fit the following criteria you are probably eligible for cover: over 18, below the statutory retirement age of 65, in permanent employment, work a minimum of 16 hours per week and have done so for at least 6 months, and you are not aware of any impending redundancies where you work.

The self-employed – which make up around 4 million of the 20 million-strong work-force – are unlikely to qualify for unemployment cover but may benefit from accident and sickness insurance.

The first rule is to be really forensic when considering taking out cover. Think how the product works, what it covers and don't just focus on how much it costs.

PPI is not for everyone but if the terms and conditions are properly understood, and all areas of the policy are completely transparent, it can serve as an effective financial back-up should your employment circumstances change, and the ability to protect your income and repay your loans/mortgages become compromised.

Some companies – and we like to count ourselves among them – have treated consumers fairly and transparently, offering appropriate products which do what they claim to do on the tin.

Banks aren't helping themselves

It's not just PPI where banks have been guilty of poor selling practices.

When you think about it, high street lenders have been accused of being involved in some instances of encouraging customers to buy products which are not suitable, from inappropriate mortgages to questionable investments.

The galling thing is with PPI, that rather than lenders rummaging through their war chests to settle the claims which are now pouring in, some have indicated they intend to challenge claims.

People who have lost out, therefore, may yet have to wait while these culpable lenders consult their legal teams and see if they have to pay out compensation claims.

To be fair, Lloyds Banking Group has said it has set aside around £3.2 billion to settle claims – but the many other lenders who have been active in this market for so many years are not, it seems, being so forthcoming.

This will do little to enhance reputations which have already been badly scarred by repeated incidences of mis-sold financial products.

There are further incidences – widely reported – where some companies who are alleged to have mis-sold PPI were also successful in selling what is known as single premium PPI.

Now banned, this was a lump sum covering the cost of the insurance, which was added to the amount borrowed, so the customer ended up paying interest on both the insurance premium and the loan.

The product was expensive and of dubious use to policyholders, but mainstream lenders continued to sell it up until recently.

Hopefully, the reclaiming process will ensure those who are eligible for compensation will get back every penny.

Views expressed are not necessarily those of MoneySavingExpert.com.