Claiming PPI could be a scandal for those in debt

posted by in Living with debt

Since we published this we’ve also written an article on Reclaiming PPI for free. If you’re on an DMP or IVA and want to reclaim PPI it’s worth reading the article below and the one linked above.

Pounds on envelope

Unfortunately your PPI isn’t returned like this

The Financial Services Authority (FSA) watchdog recently announced that it had instructed the banks to write to a further 12 million people reminding them that they may be able to claim back PPI payments. But if you’re in a debt solution, watch out. Reclaiming PPI could be a double-edged sword that’ll leave you with more debt pain.

You may have seen and heard that payment protection insurance (PPI) is being repaid to millions of people after policies were mis-sold. The sums aren’t small; the banks have put £9 billion aside to pay back these claims.

And the likes of MoneySavingExpert.com are reporting that people are reclaiming their money. The FSA’s announcement will spur millions more people to get back money that’s rightfully theirs.

Claims management companies

The statistics from the Financial Services Compensation Scheme (FSCS) show that over three-quarters of all PPI reclaims are handled by claims management companies. These companies are on record saying that they are far more likely to succeed rather than a member of the public making their own claim.

However, according to the FSCS, the difference in success between a personal claim and a claims management company doing the work is only 4%.

Of course, the general public might be submitting personal claims which might not be valid in the first place; for instance they could be out of time, making their claims invalid. But when there’s abundant information online – through respected consumer organisations such as MoneySavingExpert.com and Which? – why pay a company to do it for you?

It’s here that the second PPI scandal lies, one that specifically hurts those in a debt solution.

PPI claim can add a creditor to your debts

Using a claims management company isn’t cheap and will result in a fee for their services. At StepChange Voluntary Arrangements (our specialist IVA company), we’ve seen cases where a claims management company has charged as much as 40% in fees. That bill will arrive in the post as a separate expense.

Sometimes any PPI refund will only be credited to the balance (for example the creditor reduces their claim in the IVA to £2,000 rather than £5,000 after £3,000 claim) rather than a lump sum payment that you might have been expecting.

So the claim may have reduced your credit card balance, making the value of the debts in your IVA reduce. However, your monthly budget now needs to accommodate an extra repayment schedule for the cost of reclaiming the PPI itself. You are responsible for this outstanding amount.

In essence, by successfully using a claims management company you could have created a new debt for yourself and added an additional expense to your budget.

If your claim is successful and a lump sum payment is paid to us we can arrange to pay the claims management fees out of the money recovered.  However, if the lump sum does not cover the fees you will be responsible for paying this debt yourself.  We can’t use any of the other money that you have paid into the IVA to repay this debt.

Your loans, credit cards and overdrafts are covered by the Consumer Credit Act and these creditors must follow the standard collections procedure. However the new outstanding invoice, for a ‘service’ that you didn’t need (because you could have personally claimed), is an unregulated debt.

This means the claims management company have far more choice in terms of enforcing the debt, including escalation to the High Court. This can involve additional fees and the use of bailiffs (not common-or-garden debt collectors).

Avoid claims management companies

So why do so many people use these claims management companies?

Perhaps it’s the illusion that these companies can do a better job than you, although statistically this isn’t the case. In our experience, the information regarding fees isn’t necessarily clear and up front, and neither is where the money is paid.

You may have set your heart on banking a reasonable sized cheque and in your mind already started spending the money, but sadly this isn’t the case if you’re still in debt to same financial institution.

There’s also the added pressure that another unregulated debt could bring, one that’s easy to avoid if you spend some time and do it yourself.

For the sake of spending a short amount of your time reading our Reclaim mis-sold PPI for free article you can remain in control of your PPI claim, and your debts.

Thanks to StepChange Debt Charity debt advisor Terry Donohoe for providing background information for this blogpost

Pavan Gata-Aura is a qualified debt advisor with 6 years of experience. She enjoys spending time with her two children, fundraising for charities, has spent time volunteering in Africa and takes part in organised races.

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Tags Living with debt
  • lol

    my wife was recoverring from breast cancer and we were both fatigued by it and using a cmc seemed an easy option.reading your excellent write up gives good advice for people like us in debt. i agree we all need more protection ,perhaps through sites like yours.many thanks

    • Glad we could help. Hope your wife is feeling better.

  • glyn beaumont

    I had a loan with benificial finance(hsbc) 5 years ago ,and made regular payments on the loan up until i was laid off, i then made a claim for four months (which was a nightmare i as i had to prove every month that i was looking for work through the jobcentre) After the four months i had a serious motorbike accident which resulted in me having two major operations and me being off work for the best part of 3 years. I notified Benificial finance at the time of my change in circumstances and was told that i couldn’t claim they gave me no reason or explainations as to why and this resulted in loan being passed on to debt collectors . Can i still claim under these circumstances ? Also how do i find out the deeds of agreement to which the loan was sold to debt collector i believe that had i been able to claim under the arrangement made when taking the loan i wouldn’t be in this situation now

    • Hi Glyn,

      There’s nothing stopping you from making a claim for a refund of your PPI. Having received payments from the policy makes it a little trickier to argue it was mis-sold so your chances are probably a bit lower than average but it could be worth giving it a go anyway.

      I don’t think it’s possible to get details of the transaction when a debt collector buys a debt from your original creditor, as debts are usually sold for less than the full balance it is information they are unlikely to want to share. You could always ask the debt collection agency but I suspect they will avoid giving you a straight answer.

      Hope this helps.

      James

  • This can be looked at in two ways. If the policy was mis-sold and they were willing to pay out, then you can either ask for a refund of the whole policy and you would refund them what they paid out on already. Secondly you can ask why they were not willing to pay out on the other accident, and that could be the reason why you might be able to claim on the insurance, becaus e it could be that they shouldn’t have sold it in the ifrst instance, hence them refusing to pay out on the bike accident. Jus tmy 2 cents.

  • I’m guessing you don’t mind me visiting and
    saying thanks to you for your article – it really helped

    • We don’t mind that at all! Happy to hear you liked it 🙂

      Best regards,

      Rachel

  • We just had a claim upheld, we got a nice check for 6K through the post and 11k knocked off the loan. Only to get a bill for 5.5k through from the claim company. Truly wish I had read the small print and this post before going through with the claim company. It was not clearly explained to us that the whopping 33.95% fee would also cover any reduction of the initial loan. Oh well better of by 500 quid and 100 pound less a month so guess it’s something.

    People be warned, if you get these PPI companies calling you, do the claim yourself!

  • Nic

    Hi, if you defaulted on a loan that you paid ppi on are you likely to wake a sleeping dragon, even though over seven years have passed and I was forced into even though I was self employed at the time.

  • HRH_Princ3

    Hi, what if I defaulted on a bank /credit card loan and 9 years has gone since I last heard from my creditors, Can I claim PPI?
    If I can, Will my debtors come after me?

    Thanks

    • moneyaware

      I wasn’t sure whether to bring up the statute barred thing..

      Hi there,

      Thanks for posting.

      You can still claim PPI although there’s the possibility your creditors could chase you for the debt.

      If you haven’t made any payments to the debt for over six years, and no court action has been taken to retrieve it – it may be statute barred. You can read about statute barred debts here:

      https://moneyaware.co.uk/2013/10/statute-barred-debt/

      Kind regards,

      Jen

  • Markchapman

    After reading these articles I see ppi companies as a poison Chalshe I’ve been offered a claim payment by the credit card company directly which they would reduce outstanding debt but company would want there payment which I haven’t got bank have given me 6 months to except offer what should I do

    • moneyaware

      Hi Mark,

      Thanks for posting.

      If you’ve signed a contract with a PPI claims management company then you may have agreed to pay them a percentage of any reclaimed PPI you receive. It’s hard to know for sure without knowing the details of any agreements you’ve signed.

      Kind regards

      James

  • Markchapman

    Hi I have been charged a fee 30% which I was OK with did not realise money claimed would go towards outstanding balance because along time has passed since credit card use €1770 is the figure an as I’m recovering from heart surgery finding this money will force me back to work against medical advise I’ve not yet excepted payment any have you any ideas what I could do or delaying tactics thanks mark c

    • moneyaware

      Hello Mark

      Thanks for your message.

      The lender has a ‘right of offset’ and can use the PPI refund to reduce any arrears you owe them.

      You can read about right to offset here: https://www.stepchange.org/debt-info/debt-collection/right-of-offset.aspx
      Claims management companies are required to make consumers aware of this risk; you can read more about the rules regarding this here:
      http://www.financial-ombudsman.org.uk/publications/technical_notes/ppi/redress.html

      See the section ‘Where the consumer has fallen into arrears on their loan or credit card’.

      If you feel that the lender has acted incorrectly, you can make a complaint against them and escalate it to financial ombudsman if necessary.

      If you feel the claims company are at fault (e.g. for not informing him clearly of this risk), you can complain to them and escalate it to the Legal Ombudsman if necessary.

      If you are unable to resolve this, we’d recommend getting debt advice and including any money owed to the claims management firm in a debt solution if there is one appropriate to your situation.

      I hope this helps,

      Becca