Debt advisors don’t usually encourage clients to dream about inheriting money from a long-lost relative or winning the lottery. But getting a nice cheque from a PPI claim could actually happen – if you claim it!
PPI is a type of insurance that had many names, such as Accident, Sickness and Unemployment cover (ASU), card protection, payment cover, protected payment premium (PPP), loan repayment insurance or loan care. It’s all PPI! You may have paid PPI on any of the following types of debts:
- credit cards, store cards and catalogues;
- bank loans;
- car finance or finance on large purchases such as sofa, double glazing etc;
- mortgages and secured loans.
Often having this expensive insurance loaded on top of what you borrowed was what turned manageable debt into unaffordable debt.
The good news is that reclaiming PPI is a great way to tackle a debt problem.
Are you in one of these four situations where PPI claims could make a big difference?
Ms A – wants to clear debt and buy a house
She should look to reclaim any PPI on her current debts and older debts which she has already repaid.
Sometimes the refunded money may be deducted from her outstanding debt. For other debts, Ms A will get a cheque which she could then use to pay off debts or add to her deposit.
Mr B – has defaults and is in debt management
Even though Mr B is in debt management, he can still reclaim PPI. If a debt has been sold to a debt collector, the claim goes to the original lender, not to the new creditor.
Any money Mr B gets can be used to pay off debts. Sometimes a lot of debt, as his creditors may well accept Full & Final settlement offers. This could take years off the time to finish his Debt Management Plan (DMP).
Mrs C – thinking about an IVA
With large debts and a house with equity, Mrs C is considering an IVA. She should consider a temporary DMP instead, whilst she makes PPI claims. This may reduce her debts so that she can manage without an IVA. This will avoid an insolvency marker on her credit record.
If she starts an IVA first, any refunds will go to her creditors. And the refunds won’t reduce even her monthly IVA payments or mean that her IVA ends sooner.
Mr D – needs to go bankrupt
Mr D has been left with £25,000 of debt after a business failed. He is a pensioner and has no prospect of being able to repay it, but he can’t afford the bankruptcy fees. Even a small PPI reclaim would give him the money for his bankruptcy fees. If he was awarded a large amount, he may be able to opt for a Debt Relief Order instead.
Here is why you should not be a pessimist
IVA firms routinely put in PPI reclaims for all their clients. It’s surprising how often these succeed for clients who swear they never had this insurance! A checkbox automatically filled in, a sales assistant that ticked the box without asking you… before 2007 these were common practices by many lenders.
Perhaps you don’t think you could reclaim because you wanted the PPI or don’t think you would get much money so it’s not worth the hassle. Self-employed, unemployed or retired people were often sold policies they could never have claimed on.
Look at this case:
When Mrs E took out a consolidation loan she thought insurance would be a good idea in case she lost her job. This PPI was added to the amount she borrowed at the start. After a while she couldn’t afford the repayments, so she went back to her bank who gave her a new loan over a longer period. So she had paid one lot of PPI, then a new lot of PPI was added to the new loan. This happened twice more…
Mrs E has now received PPI refund of over £32,000
This is a case where even though she knew she had wanted PPI, it was “mis-sold” on the refinancing loans. Mrs E had no idea it had added up to so much: “If it hadn’t been for that insurance, I could have managed my debts!“
It’s now easy to make PPI claims even if you don’t have any paperwork
MoneySavingExpert’s great step-by-step PPI Reclaim Guide has everything you need:
- a misselling checklist. There is a long list of reasons, for example you may have been sold a policy that was unsuitable because of its exclusions. See which may apply to you;
- free template letters;
- details about how to a claim to the Ombudsman if it is rejected;
- bank helpline numbers – it doesn’t matter if you don’t have the paperwork and account numbers, contact these helplines and the banks will trace which accounts you paid PPI on.
A time limit on PPI refunds has been introduced, so you must start your claim before August 2019.
Don’t use a claims company!
You don’t need to use a claims management firm to make your PPI claim. Many are charging rip-off rates – 30%, 40% or even more. A House of Commons investigation concluded:
We are disappointed that claims management companies have made up to £5 billion from payment protection insurance claims, out of compensation that should have been paid to victims of mis-selling by financial services firms.
A claims firm won’t do a better job than you can. And it won’t be any quicker. The Financial Ombudsman says it approves a higher proportion of complaints from an individual than from claims companies!
As Martin Lewis says:
“You can reclaim £1,000s on PPI yourself, easily, for free. Don’t hand 30% to a no-win, no-fee PPI claims handler. Everyone who’s got or had a loan, credit or store card, catalogue, overdraft or car finance should check now if they were flogged policies.”
And there is a big problem if you didn’t repay the debt in full – then a PPI refund can be used to offset the part of the debt you didn’t pay. If this happens to you, you may not get back any cash, but the claims company still expects you to pay them their high fees.
Now less tax to pay!
Part of a PPI refund is 8% extra interest that is added. If you paid the PPI a long while ago this can add up to a lot of money! It’s taxable, but from April 2016, the first £1,000 is tax-free, see How to reclaim tax paid on a PPI refund for details.
Is there anyone who shouldn’t claim?
If you are bankrupt or have been in the past, or if you are currently in an IVA or a DRO, you shouldn’t make PPI claims – for more details see PPI Claims and Insolvency.
Claims after an IVA has finished are complicated, see PPI after an IVA for details.
These problems don’t apply to DMPs – it’s fine to reclaim PPI if you are in debt management – Mr B’s case in this article.
Updated January 2019