What Is PPI?

Payment Protection Insurance became one of the largest consumer finance scandals in UK history. Millions of UK consumers were sold policies they did not need, could not use or never asked for. Understanding what PPI was, how it worked and why it generated billions in compensation helps illustrate how financial products can go wrong when selling practices prioritise volume over suitability. This article is for general information only and is not financial or legal advice.

What does PPI stand for?

PPI stands for Payment Protection Insurance. It was a type of insurance policy sold alongside credit products in the UK, primarily from the 1990s until around 2010. The stated purpose was simple: if you could not make repayments due to illness, accident, unemployment or death, the policy would cover your monthly payments for a set period.

In theory, PPI offered peace of mind. In practice, the product became synonymous with aggressive selling tactics and widespread consumer harm.

How did PPI work?

When you took out a loan, credit card, mortgage or car finance agreement, the lender would often add PPI to the package. You paid a premium, either as a lump sum added to your loan or as a monthly charge. If you later became unable to work or lost your job, you could claim on the policy to cover your repayments.

The policy typically covered payments for 12 to 24 months, depending on the terms. Some policies also included life cover, paying off the balance if you died during the loan term.

Here is how the cost structure typically worked:

The single premium model proved particularly problematic. Borrowers paid interest on the PPI premium itself, inflating the total cost substantially. Many consumers did not realise they were paying for insurance at all.

Types of credit products that included PPI

PPI was attached to a wide range of credit products:

• Personal loans

• Credit cards

• Store cards

• Mortgages

• Car finance and hire purchase agreements

• Overdrafts

The product was not inherently harmful. Some consumers genuinely benefited from PPI when they needed to claim. The problems arose from how it was sold, not from the concept itself.

Why was PPI controversial? The UK PPI scandal

The PPI scandal emerged because financial institutions prioritised sales targets over consumer needs. Staff received bonuses for adding PPI to credit agreements. In many cases, customers did not know they had purchased the insurance until they examined their statements closely.

What is the PPI scandal in essence? It was a systemic failure of selling practices across the UK financial services industry. Banks, building societies and other lenders sold policies to people who could never have claimed on them.

Common issues with how PPI was sold

The Financial Ombudsman Service identified several recurring problems:

• Customers were told PPI was compulsory when it was optional.

• Self-employed workers were sold policies that excluded self-employment.

• People with pre-existing medical conditions received no warning that these conditions were excluded.

• Retired customers were sold unemployment cover they could not use.

• Some customers were not told PPI had been added at all.

• Premiums were not clearly disclosed, especially with single premium policies.

The scale was remarkable. Across the industry, tens of millions of PPI policies were sold over two decades. A significant proportion involved some form of mis-selling.

What is a PPI claim?

A PPI claim was a formal complaint to a lender or the Financial Ombudsman Service seeking compensation for a mis-sold policy. If you believed you were sold PPI inappropriately, you could request that the lender investigate and potentially refund your premiums plus interest.

What is PPI claim compensation based on? The calculation typically included the premiums you paid, plus (where awarded) interest – often calculated at 8% per year – minus any successful claims you made on the policy. If PPI was added to a loan, compensation also covered the interest you paid on the PPI premium itself.

Claims management companies emerged to handle complaints on behalf of consumers. These firms charged fees, often a percentage of any compensation received. Consumer advocates, including Martin Lewis through MoneySavingExpert, consistently encouraged people to claim directly rather than using paid services. The process was free when done yourself or through the Financial Ombudsman Service.

The topic of PPI claims became so prominent that Martin Lewis and similar commentators provided extensive guidance to help consumers navigate the process independently.

Can you still make a PPI claim?

This is where the situation has changed substantially. The Financial Conduct Authority set a deadline for PPI complaints, and that deadline has passed.

The FCA deadline and current status

The Financial Conduct Authority (FCA) established 29 August 2019 as the final date for submitting new PPI complaints to lenders. After this date, lenders were no longer required to accept fresh complaints about PPI mis-selling.

Are PPI claims still being processed? In limited circumstances, yes. Some complaints submitted before the deadline remained in progress beyond August 2019. The Financial Ombudsman Service continues to handle cases that were escalated within the applicable time limits.

In most cases, you cannot now make a new PPI complaint; the FCA claims deadline has passed.

Current status summary:

The Plevin element deserves brief mention. A 2014 Supreme Court ruling established that if lenders failed to disclose high commission on PPI policies, this could itself constitute mis-selling. The same August 2019 deadline applied to these complaints.

If you believe you have an exceptional circumstance, the Financial Ombudsman Service can advise whether your situation might still be considered. Contact them directly rather than using a claims company.

Key takeaways

PPI was a well-intentioned insurance product that became toxic through poor selling practices. Here are the essential points:

• PPI stood for Payment Protection Insurance, sold with loans, credit cards, mortgages and other credit products.

• The product covered repayments if you could not work due to illness, accident or unemployment.

• Widespread mis-selling made PPI one of the largest consumer scandals in UK financial history.

• A PPI claim was a complaint seeking refund of premiums plus interest for mis-sold policies.

• The FCA deadline for new complaints was 29 August 2019, and that date has passed.

• The Financial Ombudsman Service handled disputes between consumers and lenders.

For anyone with unresolved questions about a complaint submitted before the deadline, the Financial Ombudsman Service remains the appropriate contact. Their service is free and independent.

The PPI episode serves as a reminder to examine the terms of any financial product before signing. Understanding what you are paying for, and whether you can actually use it, remains the best protection against unsuitable products.