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PPI is a type of insurance policy which assists the borrower with repaying their loan if they are unable to work. Millions of such policies have been sold to UK consumers over the past decade.

Everyone is talking about PPI. One of the main reasons for this is that it has come to the public’s attention that such policies were widely mis-sold. After the scandal of the endowment mis-selling of the 1990s we are faced with yet again another scandal and the problem appears to be a lot more widespread. It appears that many financial institutions have not learned the lesson of past indiscretions.

So why is the media making a big thing out of PPI? Well, the biggest issue with this policy is the expense and rigidity of the product. Single premium PPI is added on top of the original loan amount. What this means is that the PPI insurance attracts interest as well as the loan.

Lenders need to make customers aware of the main features of their products. One huge disadvantage with PPI is that it is so expensive. Instead of paying a regular monthly premium, customers are having to borrow additional money to take out this insurance. Additionally, if the borrower wants to pay off their loan early, they lose a lot of the money that has been paid into the payment protection plan.

Another reason why PPI was mis-sold is that many of these loans last longer than the insurance policy. So if someone takes out a loan over a 120 month period, they will only be covered for half the duration of the loan. The customer would then have no insurance cover for the rest of the loan.

Another great concern with payment protection insurance is that it only pays out in limited circumstances. Some medical conditions are excluded, especially pre-existing medical conditions known to the customer at the point of sale. In addition to all this, if you weren’t on a full time permanent contract, it could be difficult to claim for unemployment.

Having said all this, the problem doesn’t simply lie with the nature of the policy itself, but the way it was sold to customers. One issue that has cropped up time and time again is that customers were under the impression that unless their took the insurance policy out their loan application would be unsuccessful. Many people who find themselves in the situation where they need to borrow money are often at the mercy of lenders and feel pressurised into accepting whatever recommendation is put to them.

The FSA has cracked down on the sale of payment protection insurance. It wrote to major lenders in February 2009 asking them to withdraw the sale of the product as soon as possible and no later than 29 May 2009. The regulator is focussed on how the product is sold and whether the sales process is fair to consumers.

More recently, the FSA has stepped up its intervention into the sale of PPI. It has issued new guidance regarding the way lenders are treating complaints about PPI and has also ordered a review of previously rejected complaints.

Several lenders have already received fines from the FSA due to the poor sales practices. Now other major lenders are taking steps to improve their processes to avoid the wrath of the FSA.

The alternative to single premium PPI is to purchase a standalone policy. These policies tend to have less onerous conditions for making a claim and also tend to be a lot cheaper. They are fixed monthly payments that can be cancelled at any point. Having said that, with all insurance policies, it is worth checking the small print to see whether there are circumstances where you are not covered by the policy.

So what does a consumer need to do if they find that they have been missold PPI? Well, the first thing to check is whether the policy was sold before 14 January 2005 or after January 2005. Anything sold before this date is classed as an unregulated sale and will be subject to different rules. What this means to the consumer is that they need to be aware when making a complaint whether the sale of the policy is classed as an “advised” sale or a “non-advised” sale.

Once this has been established, the consumer will then need to ensure that they have the documentary evidence relating to their claim. The most important details to have are the loan agreement number, the date of sale of the policy, the term of the loan and the total cost of the insurance policy.

A complaint will need to be carefully drafted based on the consumer’s personal circumstances at the time of sale. It can also be helpful to have a basic understanding of the Statute of Limitations Act, the Misrepresentations Act and the ICOBS provisions as they relate to payment protection contracts.

Consumers may also need to consider that their complaint may be rejected in the first instance. There are rules governing what constitutes a final decision and there may be options which allow the consumer to appeal against the decision. In some circumstances, complaints can be appealed through the Financial Ombudsman Service, which itself has different levels of appeals.

To simplify the whole process, a consumer can contact a claims company who can handle their mis sold payment protection claim on their behalf. A CMC will usually be familiar with the entire complaints process and what needs to be done. Some people do not have the time and inclination to manage this process alone, so letting a claims company do it for them could prove to be a good choice.