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BankruptcyNews
Junior Member
358 Posts |
 Posted - 02 April 2007 : 09:49:58
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Loan cover refunds get go-ahead
A major victory in the battle against rip-off loan insurance has been won with insurers agreeing to offer 'fair' refunds when customers cancel policies.
The Financial Services Authority has struck a deal with the trade associations that represent the majority of payment protection insurance (PPI) providers. It means that insurers will no longer apply nil-refund clauses to contracts.
PPI is the insurance sold alongside loans, credit cards and other finance agreements to cover repayments for a period if you are unable to pay through accident, sickness or unemployment in some circumstances.
One of the biggest complaints about PPI has been the paltry refunds when customers cancel 'single-premium' policies.
In these cases, the total cost of all the PPI premiums is added to the loan amount being borrowed – effectively paying for the entire term of the insurance up front. When customers have decided to cancel policies outside statutory cancellation periods they have found that insurers will give no, or only a very small, refund.
It means that, despite cancelling a PPI policy, the size of customer's regular repayments hardly changes. But now the FSA has deemed such arrangements to be an unfair term under the Unfair Terms in Consumer Contracts Regulations.
Under the new deal, participating insurers have agreed to:
• Not include nil refund terms in contracts with new customers
• Not apply nil refund terms in contracts with existing customers
• Contact existing customers if their contracts contain nil refund terms to inform them of how refunds will be dealt with in practice
• Treat their customers fairly if they need to reissue the associated loan in order to cancel the PPI
• Calculate the refund fairly, taking into account their reasonably incurred costs, which may or may not result in a pro-rata refund
• Include in new policies examples or a table to illustrate how refunds will be calculated to improve transparency.
The deal will apply to insurers that are members of the Association of British Insurers, the British Bankers' Association, the Council of Mortgage Lenders, the Finance and Leasing Association, and Protect.
Robin Gordon-Walker, a spokesman for the FSA, said: 'It will now be up to the insurer to show that the refund they offer is reasonable and fair. It might not necessarily mean that consumers get a pro-rata refund because there maybe increased risk at the start of a finance agreement and there will be set-up costs to the insurance, but there will be a significant consumer benefit arising from this change.'
This is Money says: The miserly refunds on offer from single premium PPI policies are one of the most repellent aspects of this product and one of the most common causes of complaint.
This change means that insurers will have to give 'fair' refunds it is unclear what will happen to them if they don't.
If you want to cancel a single premium PPI policy and are not happy with the refund that has been offered you should write to your insurer – or the firm that sold you the insurance – citing that firms have to give fair refunds under the Unfair Terms in Consumer Contracts Regulations and that they must explain how they came to the refund level.
Source: This is money.co.uk
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Loan cover refunds get go-ahead
