Payment Protection Insurance (PPI) case studies

In early 2007, while visiting the local branch of the financial business, Mr A applied for a monthly payment protection policy together with a credit card. He transferred the existing £3,000 balance on another credit card to the new account to take advantage of an introductory interest-rate offer on balance transfers.

After reading newspaper reports about payment protection insurance complaints, Mr A complained that the financial business had led him to believe that he was required to take out payment protection insurance with the card. He said that he would not have taken out the policy, if he had known it was optional, as it was poor value for money.

We asked Mr A to complete our questionnaire setting out his recollection of events. The financial business provided a copy of its sales file, which included copies of the application form, the policy terms and conditions, and a policy information pack.

Having considered the evidence presented by both sides, including Mr A's comments about what happened, we decided that the financial business had not led Mr A to believe that he was required to take out the policy.

When reaching this conclusion, we took into account the financial business's arguments that the application form and sales process were designed to ensure customers were aware that payment protection insurance was optional.

We noted that as part of the process, Mr A had completed and signed the application form which required him specifically to select payment protection insurance as an additional feature. He had also signed a separate box to confirm that he wanted the policy. And the policy information pack referred to "optional payment protection".

As part of his complaint to us, Mr A said that he thought he was required to take out the policy. But he did not provide any further reasons as to why he thought this.

On balance, we decided it was unlikely that the adviser would have told Mr A that the policy was compulsory - or that Mr A would have thought this was the case. But we were satisfied that the financial business had recommended the policy (which it accepted) and so it had to ensure that the recommendation was suitable for Mr A.

We looked at Mr A's needs and the features of the policy to see whether the financial business had made an appropriate recommendation in the circumstances. We did not consider the policy was an unsuitable recommendation for Mr A. In particular, we noted that:

• There was nothing to suggest that Mr A was ineligible to claim the benefits payable under the policy. Among other things, he was in full-time employment and did not, for example, have any known pre-existing medical conditions or reason to think that he would not be able to make a claim.
• Mr A told us that when he took out the policy, he thought it might be of some use to him. He told us that he worked on a car assembly line and, although there was no immediate threat to his job, he was worried about his long-term employment prospects. He did not have any sickness cover through his employer.
• We thought that Mr A might have expected to find it difficult to keep up his credit card payments if he were unemployed - and this might have encouraged him to take out payment protection insurance.
• The insurance cost 79p for each £100 of the statement balance. This provided a benefit of 10% of the statement balance at the time of the claim - to be paid each month for 12 months. We noted that the cost was not unusually high for this type of cover and that the benefit was at the higher end, when compared to other providers.
• It was not entirely clear what the financial business had told Mr A about the costs and potential benefits of the policy. And we accepted that Mr A might not have readily appreciated from the policy paperwork how much he would have to pay each month; that he would have to continue paying the premium during a claim; or what he might receive in the event of a successful claim.
• However, having considered the evidence and arguments, we thought it likely that if Mr A had fully understood the costs and benefits payable, he would still have taken out the policy given his overall circumstances.

In late 2008, Mrs B was sent a credit card application form in the post by the financial business that she had banked with for 20 years. The form was addressed to her personally, invited her to apply for a card with a guaranteed £3,000 credit limit, and included a section on payment protection which said "we strongly recommend that you take out payment protection cover".

Mrs B decided to apply for a credit card together with payment protection insurance. Later, after seeing a claims-management company's advert in a newspaper, Mrs B complained that the policy was an unsuitable recommendation for her.

The financial business provided copies of the application form together with the policy documentation which had been included with the application form.

We looked carefully at the wording of the application form - particularly the payment protection section - and the circumstances in which Mrs B received the form (including Mrs B's longstanding relationship with the financial business). And we were satisfied that it was reasonable for Mrs B to think that the financial business was providing her with advice about what she should do, even if that was not its intention.

We looked at Mrs B's circumstances and the features of the policy, to see whether the policy was suitable for her. We did not consider it was. In particular, we noted that:

• Mrs B had worked for the same employer for nearly 25 years and did not appear to have any reason to think she might lose her job.
• She received a number of paid benefits through her employer, including death-in-service benefit, critical illness cover, personal accident insurance, and permanent health insurance. This reduced the importance of the accident, sickness and life cover provided by the payment protection insurance policy.
• Mrs B had considerable savings that could be used in emergencies. She had inherited money from her parents, and so she might reasonably have expected to be able to meet her credit card payments by means other than the insurance, if she was unable to work or lost her job.
• Mrs B had historically used her existing credit card for convenience - to take advantage of the protection afforded by the Consumer Credit Act when buying more expensive goods and services. She usually paid her monthly payments in full. She did not use her existing card for long-term borrowing.
• The insurance cost 79p for each £100 of the statement balance and provided a benefit of 5% of the outstanding balance to be paid each month for 12 months.

Having considered the costs of the policy, and the fact that it was likely to be of limited benefit to her given her particular circumstances, we did not think the payment protection insurance policy was a suitable recommendation for Mrs B.

The financial business should have established Mrs B's needs - and we said that the policy was unsuitable for these reasons. We decided that Mrs B would not have taken out the policy if the business had done so.

We told the financial business to put Mrs B back in the position she would have been in, if she had not been advised to take out the policy.

Mrs C had an existing credit card with the financial business. In 2007 the financial business phoned her, offering to add payment protection insurance to her account. Mrs C agreed to take out the insurance.

A year later, when the balance of her account increased significantly after she paid for a holiday, Mrs C became concerned about the cost of the premiums added to her account. She cancelled the policy and complained that she had been badly advised to take it out - and that the financial business had failed to properly explain its costs and other features.

The financial business told us that it had not given Mrs C advice about what she should do. It provided a recording of the phone call during which Mrs C had agreed to take out the policy. We listened to the call to see what had happened.

We accepted that the financial business had not given advice. The representative had explained on more than one occasion that she could not give Mrs C advice - and that she could only provide information about the policy for Mrs C to decide herself what to do.

While the representative had described the policy in positive terms, she had also emphasised that she could not give a recommendation. We did not therefore consider that the representative had inadvertently given advice during the phone call.

As it was not an "advised sale", the financial business did not have to ensure that the policy was suitable for Mrs C. But we reminded the financial business that it still had to give Mrs C information that was clear, fair and not misleading - in order to put her in a position where she could make an informed choice about the insurance she was buying.

We decided that the financial business had provided Mrs C with sufficient information for her to make an informed choice. We noted that the representative had checked Mrs C's age and whether she was in permanent full-time employment - to see if she was eligible for the policy benefits. She had also told Mrs C about:

• The price of the policy, the cover provided and the benefits payable (and how they would be calculated) in the event of a claim. When asked by Mrs C, she had also explained what the cost of the policy would be, based on Mrs C's outstanding balance at the time.
• The significant exclusions, including that the policy did not cover pre-existing medical conditions.
• The cancellation period.
• The fact that, in the event of a claim, Mrs C would have to continue to pay the policy premium each month.
• The policy summary and terms and conditions, which she had said she would send to Mrs C after the phone call. She told Mrs C that she should read these documents carefully.

Overall, we decided that the financial business had given Mrs C a fair and balanced summary of the policy. We did not uphold her complaint.

In 2007 Mr D, a self-employed freelance journalist, received a mailshot from a financial business he had not previously had dealings with, inviting him to apply for a credit card.

The invitation explained that it was open to him to take out payment protection insurance to cover payments in the event of accident, sickness or unemployment. The invitation included information about the policy for those wanting to know more.

Mr D decided to apply for a card and to take out the payment protection insurance, which he thought would be particularly useful to him given the intermittent nature of his work. He had experienced periods without a regular income before.

Some time later, after speaking to a mortgage adviser about restrictions on payment protection insurance for the self-employed, Mr D complained that that the financial business had mis-sold the policy to him. He said that he would not have taken it out, if the financial business had drawn his attention to the unemployment terms.

The financial business provided copies of the invitation, application form and the policy documentation included with the application form. We examined these documents and decided that while the financial business had provided information about payment protection insurance, there was nothing to suggest it had provided a recommendation about what the consumer should do.

As it did not advise Mr D to take out the policy, the financial business did not have to ensure that the policy was suitable for him. But it did have to ensure that it gave Mr D information that was clear and not misleading - to put him in a position where he could make an informed choice about the insurance he was buying. We did not consider the financial business had done this.

In particular, the policy terms and conditions said that for a self-employed person to claim unemployment benefit, it would be necessary for the person's business to cease trading "totally and permanently" as a direct result of an inability to pay its debts when due.

We decided that the terms of the unemployment cover for self-employed people were harder to meet than those for employed people - and so would be an important consideration for the self-employed when deciding whether to take out the policy.

In these circumstances, the financial business should have drawn the term to the attention of Mr D when providing information about the policy. The term was not highlighted in the policy summary - it simply referred Mr D to the longer policy document where the term could be found mid way through a 20-page document.

We did not consider that this gave the term sufficient prominence. We decided that if the term had been drawn to Mr D's attention, he would probably not have taken out the policy. It was unlikely that he would be able to claim under the policy for the most likely cause of future unemployment.

We told the financial business to put Mr D in the position he would have been in, if he had not taken out the policy, by reconstructing his credit card account.

In early 2008, Mrs E applied by phone for a £2,500 unsecured loan with a three year term, together with a single-premium payment protection policy. She was borrowing the money to pay for a new kitchen. She had not previously taken out an unsecured loan.

After talking to a friend whose claim under a payment protection policy had been turned down because of a pre-existing medical condition, Mrs E complained that the financial business had mis-sold the policy to her. She said she would not have taken it out, if she had been told about the exclusion for pre-existing medical conditions - as she had a long standing knee condition.

The financial business provided a recording of the phone call, during which Mrs E applied for the policy, and a copy of the sales script used by its representative. It also provided a copy of the policy terms and conditions and other documentation sent to Mrs E after the call.

Having listened to the phone call, we were satisfied that the financial business had not given advice. The representative explained clearly and at an appropriate pace at the outset that "nothing in this call will constitute a financial recommendation or advice and any decision taken will be your own." The representative had not subsequently said anything to contradict this.

While the financial business did not give advice - and so did not have to ensure that the policy was suitable for Mrs E - it was, nevertheless, obliged to give Mrs E information that was clear, fair and not misleading, to put her in a position where she could make an informed choice about the insurance she was buying.

We were satisfied that, by and large, the financial business had done this. The representative had kept closely to the sales script and had, among other things:

• Drawn the significant exclusions to Mrs E's attention, including the exclusion for pre-existing medical conditions.
• Explained that the total cost of the policy over the term was £248.25, of which £200 was the premium and £48.25 interest.

We were concerned that neither the representative nor the policy paperwork made the cancellation terms clear. In particular, we did not consider the financial business made it sufficiently clear that, in the event of early cancellation, Mrs E would not receive a "pro rata" refund of the insurance premium and interest costs.

However, having considered Mrs E's circumstances and the likely costs involved if she were to cancel the loan early, we did not consider it would have affected her decision to take out the policy if the financial business had explained things clearly. In particular, we noted that:

• Mrs E did not have a history of re-financing, and there was nothing to suggest when she took out the loan that she expected she might cancel and re-finance part way through the term.
• The loan had a relatively short term (reducing the chances that Mrs E might look to refinance).
• As the total cost of the policy was not particularly large, the difference between a "pro rata" refund and a refund calculated in accordance with the policy terms and conditions was unlikely to have been a particularly important factor to Mrs E, in her circumstances, when deciding whether to take out the policy.

In 2006 Mr F applied over the phone for a ten-year unsecured loan together with a single premium payment protection policy. He used the money to repay his credit card debts, which he was having difficulty meeting.

In 2009, after hearing a radio report about payment protection insurance complaints, Mr F complained about the sale of the policy. He told us that he would not have agreed to take out the policy if he had properly understood how much he would have to pay - or that he would not receive a "pro rata" refund if he cancelled the policy early.

The financial business did not have a recording of the original phone call. But it was able to provide a copy of the phone sales-script which it said its representative would have followed when talking to Mr F. It also provided copies of the policy summary and terms and conditions that it said it sent to Mr F after the phone call.

We considered whether the financial business gave advice - or whether its role was limited to providing information about the policy.

Mr F told us that that the financial business had advised him to take out the policy and he simply followed the advice he was given without question.

The financial business did not accept this was the case. It pointed to the sales script which included three underlined reminders to tell the consumer that the financial business was merely providing information and was not providing advice. And it said that it routinely monitored calls to ensure that its representatives followed the script.

While we accepted it was possible that the representative might have departed from the sales script, having considered the comments from both sides, we decided it was more likely that the sale had taken place on a "non-advised" basis.

We then went on to consider whether the financial business gave Mr F enough information that was clear, fair and not misleading - to put him in a position where he could make an informed choice about the insurance he was buying.

We were not convinced that it had. In particular, we noted that the terms of the policy did not allow for a "pro rata" refund, if Mr F cancelled the policy after the statutory cancellation period. This was a significant limitation - and something that was likely to be important to Mr F who was consolidating debts and taking out a long-term loan.

The sales script did not prompt the representative to draw the cancellation terms to Mr F's attention or to mention that any refund would not be on a "pro rata" basis. So we thought it unlikely that the representative would have explained these things.

Instead, the script required the representative to direct the consumer to the cancellation terms on the ninth page of the policy terms and conditions sent out after the phone call. The terms were not prominently displayed or mentioned in the policy summary.

We did not consider it likely that Mr F would have identified or appreciated the importance of the term from the documentation and explanation he received.

We also noted that:

• The sales script prompted the representative to explain that the policy provided cover for five years. But it did not encourage the representative to draw Mr F's attention to the implications of this - namely, that Mr F would be paying interest on the premium over the full ten-year term and that he would have to take out a further policy, at additional cost, if he wanted cover after the first five years.
• Mr F was consolidating debts and looking to reduce costs. Disregarding the life cover element of the policy, we calculated that Mr F would have had to claim for at least 56 of the 60 months of the policy, to receive more in benefits than the total amount he had paid for it. This was an important piece of information which was likely to have affected Mr F's decision to take out the policy. Having considered the evidence and arguments, we did not think the financial business had sufficiently drawn this to Mr F's attention.

We decided that if Mr F had been properly informed about the cancellation terms and benefits of the policy, it was unlikely that he would have taken it out. We told the financial business to compensate Mr F by putting him back in the position he would have been in, if he had not taken out the policy.

In early 2007, Miss G was having significant difficulties meeting her minimum monthly credit card and loan repayments. She phoned the financial business to arrange a loan to consolidate her debts to reduce her payments.

The financial business agreed to provide a 15-year secured loan of £60,000 - and arranged a five-year, single-premium payment protection insurance policy. The policy premium (£14,500) was added to the loan with interest payable over the entire term of the loan.

In 2009 Miss G complained that the financial business had mis-sold the policy to her. She said she had not realised she could take out the loan without payment protection insurance - or how expensive the insurance was, particularly if she wanted to cancel early.

The financial business accepted that it had advised Miss G to take out the policy. So the questions for us to consider were:

• whether, in giving advice, the financial business took adequate steps to ensure that the policy it recommended was suitable for Miss G and to highlight any shortcomings; and
• whether it gave Miss G information that was clear fair and not misleading, to put her in a position where she could make an informed choice about the insurance she was taking out.

The financial business provided a recording of the phone call during which Miss G agreed to take out the policy. It also provided a copy of the policy terms and conditions and other paperwork sent to Miss G after the call.

After listening to the call, we decided that there was real doubt as to whether Miss G had understood the policy was optional. We could understand why she might have thought she was required to take out the policy.

Among other things, the adviser had not specifically explained that the policy was optional. And he had included the cost of payment protection insurance when providing the monthly cost-quotations before any discussions about insurance had taken place. The adviser had not provided quotations without the cost of insurance included, and he had told Miss G that "what's great about the loan is that it includes protection all built in to the monthly cost."

Although the paperwork sent after the phone call had referred to "optional payment protection insurance", we thought it was unlikely that these references would have corrected any misunderstandings Miss G had as a consequence of the phone conversation.

We also looked at Miss G's circumstances and the features of the policy to see whether it was suitable for her. Having done so, we did not think it was. In particular, we noted that:

• Miss G had taken out the secured loan to consolidate her debts. There was a real chance that she would want to cancel the policy early, meaning that she was likely to require a flexible arrangement. But this policy was inflexible - if Miss G chose to cancel the policy early, she would not be entitled to a "pro rata" refund.
• Miss G had consolidated her debts to reduce her monthly outlay, as she had been struggling to cope financially. She had explained to the adviser that she wanted the cheapest option. But the policy added an extra £25,000 to the total cost of the loan, increasing the monthly payments by a significant amount (by £140 per month).
• We calculated that Miss G would have needed to have claimed for 45 of the 60 months of the policy, to receive more in accident, sickness or unemployment benefits than the total she had paid for it. The unemployment terms meant that it was not possible to claim unemployment benefit for 45 months (so Miss G could not recoup the costs). And it was unlikely that she would claim for that number of months under the accident or sickness benefit.

These were important pieces of information which were likely to have affected Miss G's decision to take out the policy. But the adviser had not drawn these shortcomings to her attention, focusing instead on the 50% premium refund Miss G would receive if she did not make a claim on the policy. Having considered all the evidence and arguments, we were not satisfied that Miss G fully understood the nature of the single-premium arrangement and the associated costs.

Although the documentation sent after the phone call had included some information about the costs of the policy, the cancellation terms and the potential benefits, it did not highlight where the policy was unsuitable for Miss G. And she was, in any event, entitled to place trust in the advice she had received during the phone conversation.

We also noted that, while the adviser had explained that the policy provided cover for only five years of the 15-year term, he had not explained the implications of this - namely, that Miss G would be paying interest over the full 15-year term and that she would have to take out a further policy, at extra cost, if she wanted cover after the first five years.

Overall, we considered that if Miss G had understood that the policy was optional, or if the adviser had highlighted its shortcomings, it was unlikely that she would have taken it out. The policy was inflexible and represented poor value for money (even taking into account the possible premium refund). These were important considerations for Miss G in her circumstances.

We told the financial business to put her back in the position she would have been in, if she had not been advised to take out the policy.

In late 2007, Mr H applied for an unsecured loan together with a single premium payment protection policy. He applied over the phone to the financial business that he used for both his personal and business banking.

After hearing in the media about problems with payment protection insurance, Mr H complained that he had been badly advised to take out the policy - because it was not good value for money and was not suitable for his circumstances.

The financial business said it had not given Mr H any advice in relation to the policy. It provided a recording of the phone call during which Mr H had agreed to take out the policy. It also provided a copy of the policy terms and conditions and other paperwork sent to Mr H after the call.

We listened to the call recording - and were satisfied that it was reasonable for Mr H to have thought that the financial business was providing him with advice about what he should do, even if that was not its intention.

At the start of the phone conversation, the representative had read out (at a fast pace) a scripted statement which said that she was not authorised to provide advice and it was for Mr G to decide what to do. But over the course of the conversation, the representative had strayed into providing a recommendation, which we accepted Mr G had reasonably relied upon:

• The representative told Mr H on two occasions that "it might be a good idea" for him to take out the policy.
• Mr H remained uncertain and eventually asked for the representative's opinion about what she herself would do in his situation. She responded by saying, "personally, if I'm honest with you, in your circumstances taking out the protection is definitely the right thing to do."
• When Mr H said that he still wasn't sure, because the policy "seemed expensive", the representative replied, "Well, if you think of it this way, you said you run a small business, right? Well, for people, for small businesses, it's really important to be covered, because you never know what can happen, do you? And you want to be covered if that happens, to protect your payments, even if it costs a bit more. So for the security it gives you, it's probably the right thing to do."
• We were also mindful that Mr H had been with the financial business for several years - and so it knew his personal details and banking history.

We looked at Mr H's circumstances and the features of the policy, to see whether it was suitable for him. Having done so, we did not consider it was. In particular, we noted that Mr H was a self-employed car mechanic - and the financial business did not appear to have given this proper consideration when giving its advice.

The policy terms for claiming unemployment benefit if self-employed were relatively restrictive. The insurer would only pay unemployment benefit to self-employed people, if their business ceased to trade through insolvency. This meant that Mr H would not be able to claim unemployment benefit in periods where he could not find work, unless he wound up his business - which he was unlikely to want to do.

We also noted that Mr H employed two mechanics (including his son) - and so it was likely that his business would continue to trade, if he became sick or had an accident, reducing the need for the cover provided by the policy. The representative had not considered this.

Overall, we considered that if the financial business had taken steps to ensure the recommendation was suitable for Mr H's needs, and had pointed out the shortcomings of the policy, it was unlikely that he would have taken it out given the costs involved.

So we told the financial business to put him back in the position that he would have been in, if he had not been advised to take out the policy.