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Why Was PPI Mis-sold?

Reasons Why PPI Was Mis-Sold

Payment protection insurance also known as PPI is a great tool used by lenders to ensure payments of debts – no matter what happens to the debtors. When a borrower loses his job, dies or is disabled the loan is paid by the insurance company.

 The beneficial feature of PPI

PPI can easily benefit both the lender and the borrower. The lender is assured to get back the lent money and the borrower is worry-free because the loan will be settled by the insurer in case of any unfortunate incident. PPI is security for both parties. Some borrowers do not want to be charged PPI because this is an additional expense for them. But when the amount borrowed is large the insurance provided is a good protection against any mishap.

 History and Reasoning behind Mis-sold PPI

Despite the beneficial feature of payment protection insurance, various PPIs were considered mis-sold and there arose a serious scandal about this in the United Kingdom. As a result, lenders were obligated to refund the premiums paid by the borrowers. The problem regarding PPI arose because there was a belief that there was some deception involved in the selling of many policies. According to various surveys, around 20 million PPIs were sold up to May 2008 and almost 40 percent of the people were actually unaware of the fact that they were made to pay for such policies or they actually had such policies.


Some borrowers were made to pay the insurance by making them think that it was a requirement for a loan. Some lenders did not even tell the clients that part of their monthly payment was going towards PPI. These lenders merely added the cost of insurance to the amount to be paid. There were even cases when the borrowers were forced to buy an insurance that was more than the amount of loan.


PPI as an additional expense added burden to some borrowers who could have done without such insurance. This turned out to be an easy way of money making for some lenders. Most people who came to know how these policies were sold to them started to think of PPI as one way for the lenders to earn more from the loan transactions. The disputes arising out of mis-sold PPIs forced the authorities to intervene and lenders were asked to make refunds on mis-sold PPIs.