PPI rarely provides adequate cover

| May 21, 2010 | 0 Comments
PPI rarely provides adequate cover

“Onerous clauses” on payment protection insurance (PPI) mean that borrowers unable to pay back their loans rarely receive an insurance payout, a finance expert has claimed.

David Kuo, director of Motley Fool, said consumers are being duped into believing PPI will cover them if they have legitimate reasons for failing to make loan repayments.

“Borrowers think, ‘Oh, I’m getting protection in case I lose my job or fall ill’, but in actual fact most of the reasons why they would want to claim on PPI are excluded,” he said.

He added that PPI is the main way banks make money on loans.

The amount made from interest charges is “inconsequential” compared to the money made from PPI, Kuo said, adding that the current clampdown on PPI will force many lenders to increase interest rates.

Kuo said: “Ultimately, what’s happening to the banks at the moment is that they are finding it increasingly difficult to make money right now. This is just another hurdle that they will have to try and overcome, and the way they do it is by charging people more and paying people less — and that means a higher loan rate for everyone.”

The Financial Ombudsman Service recently reported a 58% increase in PPI complaints compared to 2009.

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