Payment Protection Insurance used to be sold on loans and credit cards, it was designed to cover your payments should you ever be unable to work due to accident or sickness or redundancy.
Unfortunately, PPI was mis sold to people who had no requirement for it or was totally unsuitable for them. This has led to thousands of people making PPI claims against their banks in an attempt to claim back compensation which they may be due. Billions of pounds have been set aside to repay customers who feel they were mis sold PPI and with the average claim settling for £2000, it is easy to see why the banks have ringfenced so much money.
There has been some coverage in the news this week about interest payments on PPI claims. When an offer of compensation is made by one of the big banks (Alliance & Leicester, Halifax, Bank of Scotland, Natwest, Egg), you would usually receive a full refund of the insurance premium, you would also receive interest on the award at the contractual rate you were paying and you will also be paid an element of compensatory interest at 8%. Check a PPI calculator to see an example of how much you could receive.
This ‘compensatory’ interest of 8% is calculated on each payment of PPI that was paid until the date the compensation is paid, so it can potentially be a substantial amount of money if the loan has been paid off for a long time!
However, this interest is subject to tax, as is all payments of interest in the UK. HSBC, Barclays, Lloyds and the Co-operative Bank have confirmed they will not deduct the tax at source. However, RBS/Natwest have confirmed it will.
It is important for people who have been paid interest on their loan settlements to speak to the HMRC to confirm the payment has been made. As the interest will need to be assessed for tax. Even if you receive compensation from a bank who deducts the payment at source, you may be liable for a greater proportion of tax if you are a higher rate taxpayer.
As a result of this taxation, it has been commented that the government will be due a healthy injection of cash as a result of the PPI claims being made.
If you do want to make a PPI claim, ensure you forward a complaint / PPI claim form to the bank who sold the insurance. You can deal with the claim yourself or enlist the help of a PPI solicitors or claims management company to help deal with the case. Always ensure you do your homework on how to claim back PPI before you make your claim.