The decision of the major banks not to contest the High Court ruling on the sales of payment protection insurance (PPI) brings to a close another sorry chapter in the mis-selling of financial products story. It won’t be the last, but it is probably the most widespread. Because PPI was sold alongside everything from personal loans and mortgages via credit and store cards to HP (hire purchase) and PCP (personal contract purchase) deals, no area of the credit market was left untouched.
It was certainly a nice little earner for the banks. In 2008 the Competition Commission found that sales of PPI were bringing in between £2.2bn and £2.6bn a year for the banks. Now the latest figures show that compensation for mis-sold customers could cost the industry more than £10bn. It seems the banks will still end up ahead despite their misdemeanours.
PPI is not in itself a bad product. The policy pays out – that is, continues to make repayments on your loan – if you fall sick, have an accident or lose your job. What was wrong with many sales was that the policyholders would never, ever have been able to claim – because they had a pre-existing medical condition that excluded them, or they were self-employed. These people should never have bought the product.
The fact that so many people were gulled into buying these useless policies demonstrates how much we are at the mercy of clever salesmen when we come to buy financial products.
The fact is that PPI was a secret weapon used by the banks to maximise profits while continuing to make their interest rates look attractive. They were able to advertise loans with an apparently attractive headline rate while actually pocketing a hefty extra charge for the PPI policy they sold at the same time.
Hindsight is a wonderful thing, but when it comes to financial products you can rely on the maxim “If a thing looks too good to be true, it probably is too good to be true”.
If you are getting an exceptional deal, make sure you look at the small print – and understand it. Anyone who bought PPI would have realised they were likely to have been mis-sold straight away if they had done this, especially if they weren’t able to see the policy until the deed was done.
If you are offered an apparently good deal, but you can’t see the details until after the deal completes, then reject it.
If there’s a great offer on the internet, from a company you haven’t heard of, make sure you know what your consumer protection is if things go wrong. If you are not sure, buy somewhere else.
If you are being offered a free gift, consider why a commercial organisation might be offering you something for nothing. To obtain your address, perhaps, so they can bombard you with marketing material, or give you the hard sell over the phone.
What is the point of a 0% credit card deal? To lure you in as a customer and charge you a higher than average rate of interest when the 0% deal ends, maybe? Think twice and think hard about signing up for special offers. Ask yourself what’s in it for the organisation making the offer.
While consumers may have won the PPI battle, and those mis-sold will eventually be refunded, clever marketing people will continue to lay traps and play tricks that consumers need to avoid.
Some of those most at risk are people who believe they can “play the system” and grab the free gift and then cancel, or meet the onerous obligations that a moneyback offer prescribes.
If you are really a match for the marketing mafia then good luck to you, you can probably save yourself a bob or two. But if you are a normal person with a family, a busy life and want to do more than study spreadsheets to check your finances every five minutes, you won’t go wrong by paying a fair price for a fair deal.
Radix malorum est cupiditas, as the Pardoner said in Chaucer’s Canterbury Tales. Greed is the root of evil. That applies to consumers as well as banks. Be careful out there.
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