15 August 2016
The scale of the mis-selling of payment protection insurance (PPI) is incredible. And therein lays a problem.
Some people cannot understand just how big the PPI mis-selling scandal actually is that so much so, they struggle to comprehend how their claim fits in with the bigger picture. They also find it difficult to understand how some of the mis-selling happened.
In order to understand this, we need to place ourselves in the shoes of people who took out loans, credit cards and so on some time ago; this can certainly help to explain how this mis-selling scandal became the biggest in British banking history.
It was not on the scale of the Great Depression that gripped America in the 1930s, but the collapse of Barings Bank in 2008 triggered a recession both here in the UK and across the globe. Its effects were felt by many.
One solution is to borrow money to try and 'tide your finances over' until things improve. Many people were faced with problems such as running out of money before the month's end, but still needing to put fuel in the car to get to work.
For many people, they took out a credit card. According to 'Which?', 1.3 million people who bought credit cards at this time, bought PPI at the same time, mistakenly believing that it would help them be approved for credit.
When things are tough financially, people will often take a leap of faith and take risks too.
The mistake people made was linking credit with PPI - and the banks didn't correct them in this mistaken assumption.
Applying for credit is an emotional decision. It is the money that will buy you a new, more economic car, or the money that will buy your first house or make home improvements. People want the money and as such, as receptive to suggestion. They can, to a certain extent, be led and thus, when they are given the impression that PPI will help them secure the loan etc., they opt for it.
But in many cases, as we see above, the mistake is that PPI will not and does not offer the cover that many people thought it would. Thus, they were confident that if the worst happened and they were unable to work, that they had an insurance product that protected them.
It wasn't to be. With complex forms and a long claim process, the possibility of PPI offering you the cover you thought it would were nothing more than an illusion, created by banks and lenders.