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Payment Protection Policies - are they worth the paper they are written on?

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The record number of complaints to the Financial Ombudsman Service about mis-sold Payment Protection Policies is not surprising in the current climate. Many people have become unemployed as result of the economic downturn and are looking to rely on the insurance policies they took out to cover their repayments on their loans, credit cards and mortgages.
Our Consumer Credit team are taking many enquires and opening up more and more new cases for consumers who have been surprised to discover, when attempting to claim, that they were never covered under their policies due to existing medical conditions or their job status at the time they entered into their agreement. Many complain of not been asked about their employment status or medical histories. They are not told about the advantages and disadvantages of the policy and some are simply told the policy must be included if they want the loan or that it simply forms part of the overall package. Many consumers are not made aware that most policies will only cover them for a period of 12 months or that they won’t cover the whole term of the loan.
It is good to see that the Financial Ombudsman Service is taking consumer complaints seriously and is tackling what is clearly a widespread practice by creditors, who unsurprisingly are objecting to the Competition Commission’s intention to ban the sale of such policies at the point of sale. Many creditors receive undisclosed commissions for selling the policies and when insurers won’t pay out they can deny responsibility as it is not their decision. This is why the Financial Services Authorities plans to force creditors themselves to reconsider any rejected claims.
I am clearly in support of the work both the Financial Ombudsman and the FSA is doing to tackle the mis-selling of payment protection but it is important for consumers to also consider whether any legal redress is available to them under the Consumer Credit Act 1974. The mis-selling of payment protection may make the agreement unfair and if any of the agreements were entered into prior to April 2007 it is possible that the whole loan can be challenged, especially in cases where consumers have been told that the payment protection had to be included if they wanted the loan.
By consumer solicitor, Sarah Hood