What Is Payment Protection Insurance (PPI) and the Scandal Explained
What Is PPI?
Payment Protection Insurance (PPI) was designed to cover loan, mortgage, or credit card repayments if you were unable to work due to accident, sickness, or unemployment. In principle, it was a legitimate product - one that could protect people from defaulting on credit commitments during hardship. In practice, it became one of the biggest financial scandals in UK history.
The PPI Scandal
From the 1990s through to the mid-2010s, UK banks and lenders mis-sold PPI on an enormous scale. Policies were routinely sold to people who were self-employed, retired, or had pre-existing medical conditions - making the policy worthless to them. Others were not told PPI was optional or were sold it without their knowledge as part of a credit agreement. The Financial Conduct Authority (FCA) and its predecessor the Financial Services Authority (FSA) found widespread mis-selling across the banking sector.
The Scale of the Scandal
The PPI mis-selling scandal resulted in over 38 billion pounds being paid out in redress by UK banks and lenders - the largest consumer redress programme in UK financial history. Banks including Lloyds, Barclays, HSBC, and NatWest paid out billions in compensation. The FCA set a final complaint deadline of 29 August 2019, after which no new PPI claims could be submitted.
Is PPI Still Sold?
PPI in its traditional form is rarely sold today. However, similar products - sometimes called Accident, Sickness and Unemployment (ASU) insurance or income protection - are still available and can be legitimate products when sold transparently. The key differences from mis-sold PPI are: clear disclosure of terms and exclusions, sold as a standalone policy rather than bundled into credit, and appropriate for the borrower's circumstances.
Lessons for Consumers
- Always read the full terms of any insurance attached to a credit product
- Check whether any insurance is genuinely optional before agreeing
- If you are self-employed or have pre-existing conditions, scrutinise the exclusions carefully
- The Financial Ombudsman Service (FOS) remains available for other financial mis-selling complaints
