Thousands of people across Ulster could be set to become embroiled in protracted battles to retrieve their money from costly loan protection schemes, a consumer watchdog warned today.
Payment Protection Insurance (PPI) is designed to cover borrowers' loan payments if they lose their job or cannot work because of ill-health. But thousands of consumers - including hundreds from Northern Ireland - are seeking refunds of premiums for PPI after it emerged many are riddled with exemptions and have been mis-sold. And, only £1 in every £5 collected is paid out to customers - a figure described as "shocking" by consumer group Which?.
About £4bn of the £5bn paid in premiums annually is kept by the industry, making PPI the most lucrative form of insurance in the UK. More than 300 cases were reported by Northern Ireland consumers experiencing difficulties with PPI policies to the Citizens Advice Bureau and the Financial Ombudsman Service (FOS) last year.
The FOS also revealed it had received 800 queries about PPI policies from consumers across the province during 2007.
But an FOS spokeswoman warned that: "PPI could potentially affect thousands of Northern Ireland consumers".
The warning also comes after the Financial Services Authority (FSA) imposed a record £1.1m fine on HFC Bank, which loans money to people with poor credit records.
HFC, a subsidiary of HSBC, sold PPI to 163,000 sub-prime customers, but its advisers failed to explain their recommendations or identify any of the many exemptions that would bar payments if they claimed through illness or redundancy.
Emma Parker, a spokeswoman for the FOS, told the Belfast Telegraph: "We have had 115 PPI cases referred to us from consumers based in Northern Ireland since April 1, 2007 to the current date and around 800 inquiries about PPI to our consumer helpline from Northern Ireland residents.
"PPI is a significant problem and one we have been concerned about for some time, particularly in relation to the sale of single premium payment protection polices, where typically a lump sum for insurance is added to the loan value and interest rolled up over the life of the loan."
Lucy Cochrane, information and policy officer for Citizens Advice Bureau in Northern Ireland, said they had received 212 complaints about PPI in 2007.
"Hopefully people will become more aware of their rights. They need to read the small print and ask questions before signing.
"But in a lot of cases they don't really understand what they are signing," she explained.
"We are receiving more complaints about PPI than any other type of insurance and it is clear from the fact that we are currently upholding 80% of these complaints that many of these policies have been sold inappropriately to consumers"
The FSA has so far fined 12 firms, including GE Capital and Capital One.
Stephen Thompson, Trading Standards Service NI's Consumerline manager, said: "If people have been mis-sold or felt forced to take out PPI then we want to here from them."
The British Bankers' Association said PPI provides valuable security but added: "It is not a compulsory product - no one is forced to take the insurance and loan decisions are not based on taking the cover."