Mis-sold PPI: what is PPI?

In recent news you may have come across a story about PPI and how many millions of people might be entitled to thousands of pounds in compensation. But what is PPI exactly?
PPI stands for Payment Protection Insurance which is a controversial financial product that was widely sold during the early twenty-first century, although it is now less widespread. As the name suggests, payment protection insurance enables you to insure your debt repayments.

How does PPI work?
The idea behind PPI is that as long as you are fit and healthy, have a full time job which allows you to pay your bills and you have not been made aware that your job is at risk in any way, you can insure your repayments towards any debts, just as you can insure your car, your home and your health. In return for paying an insurance premium, you will get an assurance that if you are involved in an accident, your become ill, or lose your job, the insurance company will give you enough money to make your repayments.

Isn't PPI a good thing?
In theory, Payment Protection Insurance can be a very useful product which helps consumers to protect their finances. However, the problem with Payment Protection Insurance is that the majority of cases it has been mis-sold to the consumer. Often this has resulted in consumers paying out thousands of pounds for PPI policies which were unsuitable for their needs, or which would never cover them because their individual circumstances fell outside the policies terms and conditions. In extreme cases in which PPI was sold alongside loans or other credit products, consumers were told that they would not be approved for credit if they did not take out a PPI policy.
However, mis-selling is not just restricted to circumstances in which the salesperson has misled the consumer about the terms of the policy, or has lied in order to close the sale. In many cases where PPI was sold alongside a loan, the salesperson did not explicitly tell the consumer that they should shop around as they may be able to get a similar policy much cheaper elsewhere, and in these circumstances the PPI will have been mis-sold because the salesperson will have breached the financial regulator's rules about frankness and openness.

What if I think I was mis-sold a PPI policy?
Although the mere fact that you have a PPI policy does not entitle you to compensation, you should give serious consideration to making a claim if you believe that you were mislead in any way into  purchasing the PPI or the salesman was not entirely honest with you. If you have a loan, mortgage or credit card but do not think that you took out PPI, you should still make a claim as many credit providers have been fined by the financial regulator for adding PPI to loans and credit products without informing the consumer.