How to claim back Payment Protection Insurance

PPI is not inherently bad. If you decline the offer of such a policy next time you apply for credit, and shop around for a standalone policy, you can ensure that you are adequately covered for a reasonable sum.

If a lender insists you take out PPI, you would do well to walk away. However some lenders (a minority, admittedly) operate reasonably good value policies that cost around the £20 mark each month. It pays to ask questions and read the small print of your loan application before you sign and return the forms.

The best value standalone policies on the market are run by Paymentcare and cost £3.95 per £100 insured. You can cover yourself against accidents, sickness and terminal illness.

Alternatively, search for the best Income Protection insurance. Click here.

What to do if you think you have been mis-sold

In summary, you may have a case for mis-selling if any of these scenarios seem familiar:

You're over 65, self-employed, unemployed, retired, redundant or had a serious medical condition when you took out your loan:

Since you have to give details of all these conditions on your loan application, being sold PPI thereafter could constitute mis-selling.

You were sold a single premium policy.

This is where the entire PPI cost is loaded in a lump sum at the start of the loan agreement. If you had one of these polices and complained, but only received a small amount back as a refund, you may be due a bigger sum under FSA guidelines.

You were not given full details of the insurance.

When you took out the loan were you told that the insurance was compulsory? Did you even know about the policy or did it first appear as a charge on your statement?

Your PPI ran out before your loan ended

You were not asked whether you already had some form of repayments cover

The terms and conditions of the policy were not explained

The credit provider has already been fined by the FSA for mis-selling

First steps

Cancel your policy if your loan is still running. Call your bank and see what they say. Not all banks will allow you to cancel once the initial cooling-off period (usually 30 days) is over. Some will insist that you repay your loan.

However, many lenders are becoming more flexible in their attitudes and may allow you to cancel your policy and keep the loan.

What if the bank says no?

There is a good chance the bank will fob you off. If this happens, it is time to start writing letters.

Write to your lender. Be professional and polite. Present details of your loan and policy, when you took it out, and state why you believe you were mis-sold the policy.

Ask for a full refund plus eight per cent interest on all premiums you have paid. Tell the bank that if it fails to resolve the matter within a reasonable period, you will take your complaint to the Financial Ombudsman Service (FOS).

If you are not offered a fair refund from your first letter, write another letter and demand that the matter be resolved within 14 days.

The Ombudsman

It might sound like a big step, but taking your complaint to the FOS is easy. You can either do this by emailing complaint.info@financial-ombudsman.org.uk or by calling 0845 080 1800.

You will need to fill in a complaint form to outline your complaint, and enclose copies of any paperwork that backs up your case. Click here for the complaint form.

If all else fails

You could turn to the courts. Taking action against a lender via the Small Claims Court is easy.

Your action would be on the grounds that the lender broke its contract with you by failing to give you all the facts about the PPI policy or failing to ask you all the relevant questions.

Although using the Small Claims Court costs money, costs are returned if you are successful. Be aware though that you may have to argue your case in court. If you feel you cannot do this, there are a number of no win, no fee law firms that specialise in such cases.

Useful contacts

- Citizens Advice Bureau
- Small Claims Court online
- Financial Ombudsman Service.