What is Payment Protection Insurance?

15th September 2016 Blog

What is Payment Protection Insurance?

Payment Protection Insurance (PPI) is sold to borrowers when taking out a loan or a credit card. The purpose of the insurance is to cover the repayment of the specified borrowings incase one of the following events occurred; sickness, accidental injury or unemployment.

Why are people claiming against PPI?

PPI is commonly sold as part of a package with the loan itself, with a large proportion of the profits of loan brokers deriving from selling PPI Policies. These commissions that the loan brokers were receiving were very high, they were typically between 50 – 80% of gross written premium policies sold in connection with a personal loan. The court deemed this as unfair and stated that it conferred with the Sections 140A to 140D of the Consumer Credit Act 1974.

Why have the Court re-opened ‘Unfair Credit Transactions’?

The court was approached by Mrs Susan Plevin who was appealing the provisions to a PPI policy that she was issued back in 2006.

The start of the Plevin v Paragon Case…

Mrs Plevin, a fifty-nine year old widowed college lecturer who was living in her own house with a mortgage and various unsecured personal debts received a leaflet off independent credit brokers, LLP Processing (UK) Ltd. The brokers offered to arrange the refinancing of her existing liabilities at a competitive rate of interest over a long term.

They proposed that Mrs Plevin borrowed £34,000 from Paragon Personal Finance Ltd, which would be repayable in instalments over ten years and take out PPI for five years with Norwich Union. The PPI premium was £5,780, which was payable at the outset and added to the amount of the loan making the total borrowing £39,780.

After discussing LLP’s proposal, they sent a proposal letter to Mrs Plevin quoting a premium for PPI cover at £5,780 and a document with ‘Key Facts’ about the insurance, a ‘Borrower Information Guide’ produced by the Finance Industry Standards Association (FISA) and an application form.

Once the transaction was completed, Paragon sent her a copy of the credit agreement, the PPI certificate and four cheques, three of which were payable to her designated creditors and the fourth to her personally. This was the only time Mrs Plevin was in direct contact with Paragon.

After analysing the documents received, Mrs Plevin saw that of the £5,780 premium, 71.8% was taken in commissions from the premium. Mrs Plevin then read the FISA borrowers’ guide with stated that “commission is paid by the lending company”. However, neither the amount of the commission nor the identity of the recipients was disclosed.

In January 2009, Mrs Plevin brought proceedings against LLP and Paragon on the basis that they were in breach of their duties as her fiduciary agents.

The claim against LLP was settled in 2010 for £3,000 which was paid from the Financial Services Compensation Scheme.

Mrs Plevin’s case was relevant under the Section 140A, ‘Unfair Relationships’ between creditors and debtors and resulted in the re-opening of rejected PPI claims.