Financial mis-selling has affected millions of people, in many cases without them even knowing it. Over the past 30 years, in particular, many people around the world have been encouraged to buy financial products or insurance policies in circumstances that range from careless to downright fraudulent on the part of the seller. While cases of the latter are thankfully relatively rare, it is still the case that if you weren’t given all the information you needed before buying a policy, whether the omission was deliberate or accidental, or indeed if you were led to believe something that wasn’t the case in order to get you to buy, then like millions of other people you have been misled about a financial product.
Financial mis-selling can cover a wide range of products and policies, including endowment mortgages, investments, packaged bank accounts and pension transfers. Culprits can include respectable nigh street banks and building societies, as well as independent financial and insurance providers and even retailers that offer credit. In the UK especially, one financial product that has become notorious for being mis-sold is Personal Protection Insurance, better known as PPI.
Since the early 1990s, PPI has been routinely sold alongside mortgages, credit cards, and unsecured loans. In principle, this extra insurance served a worthwhile purpose. In return for your premiums (regular payments) if for a range of specified reasons, you were unable to make repayments on your loan or mortgage you were covered, and the insurer would pay. The reasons generally included losing your job or becoming too ill to work.
In the early 2000s, it was revealed that banks, building societies, and other companies had been making sizeable profits on PPI, without disclosing that fact to customers. PPI was sold as a policy that was intended to protect the customer, whereas in fact it was often mainly just another source of profit for the seller, as well as the provider. As such, customers were often pressurized or otherwise convinced to buy PPI even when they didn’t need it.
In 2005, Citizens Advice in the UK described PPI selling as a “protection racket”, and people started filing for compensation. Sales of some varieties of PPI were banned, but it was estimated that around 53m PPI policies were sold, mostly by high street banks and building societies. One of the most notorious was Northern Rock. Besides PPI, the bank was also found to have mis-sold its ‘Together’ mortgage product, which combined a mortgage and a personal loan of up to £30,000 at preferential rates – but which came with inaccurate documentation.
By 2016 12m people in the UK had received compensation for mis-sold PPI, worth £24.2bn.
What is mis-selling?
Mis-selling is when you’re sold a product that isn’t right for you, you were given unsuitable advice, or the full terms of the deal (including the risks) weren’t properly explained to you. If you weren’t given all of the facts you needed to make an informed decision about whether to buy the product or policy or if you felt that you were pressurized into buying it, then that counts as mis-selling.
The problem then is not necessarily with the financial product itself, but with the way that you were sold it. It should have been fully explained to you what the product is, what it is for, how much it costs and exactly what it can and can’t do. The Financial Conduct Authority (FCA) states that financial services must be sold in a way that is “fair, clear and not misleading.”
Some people have lost money through financial mis-selling, but this isn’t the test of whether or not it happened- or whether you can claim compensation. Even if you didn’t lose money, you could still have been mis-sold to. Equally, just because you lost money, it doesn’t mean that you were mis-sold a financial product. If you were made fully aware of the risks at the point of sale, then you would have known that losing money was always a possibility. However, if you were sold a product or policy without being told of the risks, then you could claim compensation- even if the product actually performed well for you.
Were you misled over PPI?
PPI mis-selling can happen in many ways. You might have felt pressurized into buying the policy or been told that it was compulsory. If you weren’t told that you could buy it elsewhere, or how commission worked on the policy, or about any exclusions, then this would count as mis-selling. If the terms and conditions, including the rules about pre-existing medical conditions, weren’t fully explained to you, then that too is mis-selling. The seller should also have asked if you already had an insurance policy that covered you if you were unable to make repayments before selling you PPI. As one of the reasons for PPI is to cover you if you lose your job, you should not have been sold it if you were unemployed or retired at the time, but that did happen. If you think that you were mis-sold Northern Rock PPI or any other form of Personal Protection Insurance, then you might be entitled to financial compensation.
Were you misled over a mortgage?
Mortgage mis-selling is another common source of compensation claims. If your mortgage end date is after you are due to retire, or you weren’t told about commission paid to your advisor or broker by the lender, then you could be entitled to compensation. Bad or incomplete advice is another example of mis-selling. For instance, you might have been advised to take out a fixed-rate mortgage but then to remortgage your house to get a better deal- only to be penalized for exiting the fixed-rate mortgage early. Similarly, you could have been advised to switch lenders without being told about penalties or advised to borrow money without proving your income (“self-certifying”) or even to overstate your income in order to borrow more than you could afford.
In most cases, you have six years from being mis-sold a financial product to act or three years from when you became aware that you were misled. The deadline for PPI compensation in the UK is 29 August 2019, so don’t delay. And when buying financial policies in the future, always be clear about what you need, when you need it and what you need it for. Do your research and compare prices, and make sure that everything, including the small print, is always fully explained.