Experts say credit card insurance has almost certainly been mis-sold by lenders in this country with a view to increasing profits

EARLIER THIS month, Allied Irish Bank wrote to hundreds of its credit card customers alerting them to possible problems related to the Payment Protection Insurance (PPI) policies sold to them in connection with their credit cards.

The somewhat mysterious letter said it had carried out a review of the sales of such policies and had uncovered “inconsistencies”.

As a result of these “inconsistencies” the bank asked the recipients “whether or not it was your intention to purchase payment protection at the time of opening your credit card account”. When contacted by this newspaper, AIB would not discuss the nature of the inconsistencies and refused to discuss whether or not people affected would be issued with refunds as a result.

One customer who Pricewatch spoke to says he was sold a payment protection policy seven years ago but had not been aware he had taken out the policy. He is now waiting to hear back from the bank as to how it plans to proceed.

The letter caused gentle ripples of concern because the issue of payment protection is controversial, to say the very least. Such policies ostensibly offer to clear outstanding debts on credit cards in the event that card holders fall sick or lose their jobs and are unable to cover their debts.

They have, however, been dogged with controversy in the UK in recent years after widespread mis-selling was uncovered and millions of consumers got billions in refunds after being sold policies which are hugely profitable for the banks, but not so useful for the customers.

Just how profitable the policies were was revealed following an investigation by the UK’s Competition Commission in 2008. It found that for every £100 received in premiums for payment protection insurance, just £15 was paid out to cover claims. This compares with £78 paid out in car insurance and £54 in home insurance.

Among the more common reasons for refunds in the UK included policies being sold to the self-employed despite the fact they would almost certainly not be able to claim against becoming unemployed. Similarly, people who fell ill as a result of a pre-existing condition found their policies were invalidated. Some customers were denied loans or mortgages unless they took out PPI, while many customers were unaware they were paying for it at all.

The mis-selling scandal has yet to engulf the Irish banking system in the same way, but according to legal experts, PPI has almost certainly been mis-sold by banks and lenders here with a view to increasing profits.

The latest PPI figures from the Financial Services Ombudsman do not suggest there is a major problem. Last year, just 18 per cent of complaints in the insurance sector related to PPI. Of the 405 complaints made last year 181 related to mis-selling, and the Ombudsman found against consumers in the majority of cases. Complaints were fully upheld in 18 per cent of cases and partly upheld in 15 per cent, with the remaining 67 per cent not upheld.

Despite the low hit rate there has been a proliferation of companies offering to take on the banks in connection with potential PPI mis-selling. Legal firm McHale Muldoon is one of the firms offering to take on the financial institutions. Despite the figures from the Ombudsman’s office and the claims from the banks that they have done no wrong, the firm believes the floodgates are about to open.

Over the past four years McHale Muldoon’s sister firm, McHale Co Solicitors, based in Manchester, has successfully reclaimed thousand of euro in mis-sold PPI for its clients from a broad range of UK financial institutions and it was set up here last year to specifically highlight the extent of PPI mis-selling in the Republic.

“The same products that were being sold in the UK are being sold in Ireland, and the same sales methods are being used. We can see a very similar pattern, so I think it is clear that the same problems exist,” says Michael Muldoon. “It hasn’t exploded in Ireland in the same way that it has in the UK, and that is down to consumer awareness.”

He says it is difficult to assess just how widespread the problem is here, but points out that the British ombudsman has ruled in favour of consumers in 88 per cent of cases, “so even if the number in Ireland was half that you would be looking at nearly 50 per cent of policies being mis-sold. That could be worth as much as €600 million.”

He cites one man who was paying for two policies with MBNA despite the fact he was retired and would not be in a position to make a claim. Another policy was sold to a woman who worked in the home and would never be able to claim.

He says while the British banks have by and large caved in to consumer pressure, Irish financial institutions are continuing to stonewall their customers. “That was the pattern in the UK until the floodgates opened two years ago as the pressure increased.

“It [PPI] is not always a bad thing, and there might be some cases where it is useful and suitable. Not every policy is a sham, but the evidence suggests that a lot of policies are unsuitable – and if that is the case then the policy has been mis-sold.”

Pricewatch has a natural distrust of ambulance chasers and companies who promise consumers the earth, particularly when the DIY option is on the table. “Of course you can do it yourself, and a lot of the time in the UK now that is what is happening,” Andrew McHale says. “But as things stand in Ireland, each complaint is being stonewalled, so you need to construct a case carefully and word your complaint carefully.”

The first step anyone interested in making a claim needs to establish is whether they have a PPI policy. In the UK, a remarkable number of people who were mis-sold the policies did not even know they had them. If a PPI policy is in place and you have concerns over it, the next step is to contact the creditor and get a copy of your consent to the policy. You should also ask for the policy terms and conditions and a statement of how much the premiums have cost so far.

Finally, consumers who believe they have a case need to write to the financial institution in question stating in clear and unambiguous terms the facts of their case. If they are stonewalled on the issue, the final step is to contact the financial ombudsman, who can look into cases dating back six years.

It is a long road and the banks will not make it easy, but someone who was mis-sold a policy on the back of a credit card debt of €10,000 six years ago could be in line for a refund of several thousand euro.

Not every policy is a sham, but the evidence suggests that

a lot of policies are unsuitable