What is PPI?
PPI (or Payment Protection Insurance) is a form of cover that was applied to any form of facility that a client of a Bank, Building Society or any form of lending institution would, on the majority of occasions, have to pay when they were taking out, or borrowing, any form of money from the particular lender.
The Payment Protection Insurance itself became a huge money spinner for a lot of the Banks in the 1980s and 1990s. They used it to generate vast profits by selling the product in addition to loans and credit cards and, on some occasions, mortgages. At this time, the Banks did not give the opportunity for clients to have a choice in taking out the policy. Staff members were trained (quite aggressively) to make sure that anyone who was applying for a loan or credit card at the time, were (allegedly) given the option to take out the insurance. The reality however was that the staff were trained to make sure that a minimum of 95% of those people who enquired about borrowing facilities had the insurance – whether they wanted it or not!
Sadly, the majority of people who went into a Lender for any form of borrowing (as of course there were no applications online because the internet had not yet been born in the late 1980s and 1990s) were so pleased about having the borrowing facility that they almost ignored the fact that the Payment Protection Insurance was added to their facility without their knowledge.
When I worked for a major High Street Bank, their favourite way of selling it was to ask if the customer wanted the borrowing. If they did, they were asked how much they could afford each month. The customer would then give a number and you would then calculate the borrowing over a period of time, including the Payment Protection Insurance, which would take you just under this amount each month. The customer was therefore happy, and you of course had a tick in the box, meaning you did not have to justify to your Line Manager why you had not sold Payment Protection Insurance.
Unfortunately, the Payment Protection Insurance was largely irrelevant and the vast majority of people could not actually make any claim against the policy, should they fit the criteria, as most of the exclusions would apply.
Following the 1980s and 1990s, the Banks and a variety of other Lenders, started to develop the product to apply to all forms of borrowing, in particular, sofa finance, car hire purchase (HP) as well as developing the product for secured loans and also mortgages.
The “heyday” for Payment Protection Insurance was probably during the latter part of the 1990s and early 2000s, when the majority of people had the insurance applied to their facilities. These facilities were so widespread, and included so many different types and forms of borrowing, that almost everybody was touched by the policy.
The Payment Protection Insurance itself should have been used to cover people in the case of dire need. This would include periods of unemployment, sickness, disability and death. Unfortunately, this was not always the case. Only around 10% of people who applied to make a claim on their policy for one of the conditions was accepted. This is the main reason why the policy itself was largely ineffective, expensive and of course irrelevant. This has meant that refunds are vast nowadays with regard to the mis-selling of this particular product.
Unfortunately, the product typifies the Banks’ lack of respect for its clients, and its remorseless ways of obtaining a huge profit – at the expense of its clients.