Egg on their faces
By TIM HEMING
Sun Money
September 25, 2007
INTERNET bank Egg has been accused of mis-selling payment protection policies.
Furious customer Dominic Sinclair is taking the firm to court, claiming he was mis-sold payment protection insurance, or PPI, with a £7,000 loan.
If he wins, it could open the floodgates for numerous similar claims.
PPI policies — branded “near useless” by consumer watchdogs — are intended to cover repayments if the borrower falls ill or is out of work for any length of time.
In practice, they rarely pay out — and boost profits of the major banks by up to £300million a year.
Just four per cent of customers actually make a claim and up to a quarter of these are thrown out. The Sun has been given audio recordings that show how Dominic was sold his PPI.
The 37-year-old from Manchester said: “It’s sneaky. I’ve been paying £30 a month for three years for my PPI.
“But I’m self-employed, so the chances are I wouldn’t be covered anyway. Yet Egg knew that when I took the loan out.”
The recording proves that at no time does the adviser tell Dominic the respective costs of the loan with and without PPI.
Nor was he made aware the premium would be added as a lump sum to the loan and interest charged.
The adviser is also clearly reading from a script, which suggests many more people will also have been wrongly advised.
Claims company Brunel Franklin, who are taking Dominic’s case to court, estimate around 35million policies have been mis-sold since 2001.
But a spokesman for Egg defended the case, saying: “In the context of the time, I think it was an acceptable sales technique. But the market has revised selling PPI as it has become a regulated product.
"There are two separate agreements for loan and insurance and maybe people don’t read the small print.”
Another Egg borrower, Andrew Atterton, from Bristol, claims a PPI he was sold by Egg cost him £6,000.
On a £17,000 loan, the 24-year-old would normally have to pay back £21,000 including interest.
But the sickness and injury cover was bundled in, taking the overall repayment to more than £27,000.
As a result, Andrew monthly payments shot up from £314 a month to more than £400. He said: “I genuinely didn’t have a clue how much this would cost me.”
Even if Andrew had become sick he may not have been able to make a claim. Insurers are entitled to go through medical records before paying out.
But Andrew was not even questioned on whether he had any pre-existing medical conditions that could invalidate any claim.
David Kuo, from personal finance web site The Motley Fool believes PPI often means bad news for customers.
“This is sheer underhandedness. Most PPIs that are sold when you take out a loan is not just the icing on the cake for the lender, but the whole gateau.
“They only pay out £20 for every £100 of premiums collected. It is tantamount to feeding a slot machine for the duration of your loan.
" But at least with a one-armed bandit, you have a slim winning - with a PPI bandit, you may get nothing even if you deserve to be paid out.”
Prudential sold Egg to Citibank for £575million at the start of the year. It had lost £145million in 2006.
Why say ’no’ to PPI
Lenders aggressively sell PPI and many people don’t even realise they have bought it because it has been bundled in with a loan.