The payment protection insurance scandal has already hit most banks pretty hard forcing them to spend upwards of £12bn. Millions of customers were affected by this scandal, but now there is a new angle to the scandal as borrowers are finding just how much they have spent on insurance schemes designed to help protect their credit card debt.
Most of the PPI scandal has been focused on policies that were not sold correctly to customers in terms of personal loans, but it seems that the £8.9bn they have paid out to these loan holders is not the end of the reach. Borrowers are starting to realise that a similar and even more toxic type of PPI was actually sold with credit cards as well.
Barclays, the largest credit card provider in the nation, has now been ordered to write to all 750,000 of its customers to tell them that they might deserve compensation. All of the letters have to be mailed out to consumers by June. Credit card payment insurance is very similar to the personal loan type, and was supposed to guarantee to borrowers that if something happened to their incomes the insurance would kick in and pay their monthly balance on their credit cards.
The practice however was actually much more complex than this. The policies generally charged customers about 80p per every £100 that was on the card’s balance. How a balance was measured and if premiums counted in the balance are two reasons why the PPI got confusing.
The interest rate would also mount rapidly making customers pay even more for their PPI and over time the insurance could actually continue to mount and customers could end up paying on the protection itself for years without any knowledge of the matter.