Consumer Rights: Don't leave it too late to claim for mis-sold PPI

The banks are seeking a cut-off date for mis-sold payment protection insurance compensation — but there's no need to use a third party

Costing £12bn, with half a million complaints in the bag, PPI (payment protection insurance) is breaking all mis-selling records and the banks want a line drawn under the scandal. PPI has acquired a bad reputation, but it is how it was sold that is the problem.

PPI is designed to help policyholders repay loans and credit cards if they get ill, have an accident, are made redundant or die. With the right policies, your mortgage and card bills will be paid and you won't lose essentials while you recover.

But these policies were sold, by banks and other providers, to millions who didn't need them or could never claim – people with other cover, self-employed or exempt (because of a pre-existing medical condition, for example). Many were refused a loan unless they also paid for a useless PPI policy. Sales staff on commission didn't explain the policies properly, customers were misled and banks pocketed the profit.

Millions of people have been compensated. The average payout is just under £3,000, covering a refund of the premiums, interest on those premiums if they were added to the loan, and the interest that would have been earned had that money been saved.

Everyone seems to have been taken by surprise by the scale of the scandal. The banks have had to take on thousands of staff and set up call centres to deal with claims, and the debacle could cost them £40bn in total. Now they want it to stop. They've asked the watchdog, the Financial Services Authority, to set a deadline in April 2014, after which no more claims will be accepted. However the FSA and the British Bankers' Association haven't agreed on any cut-off date.

Consumer groups are livid. Customers were sold these policies over a decade, and if they were mis-sold, every last claim should be settled.

It's a mess, and of course there are people making money out of clearing it up. Claims management companies deal with the claim and take a slice (up to a third) of the compensation. But they're also pushing up the bill by making false or invalid claims which are costly for lenders to investigate.

All this adds up to higher charges for bank customers down the line: the more compensation banks pay, the more likely they will be to bring in charges to recoup. An end to free accounts is a case of when, not if.

You should have had a letter telling you if you've been mis-sold. However, there have been delays so:

1. Check your paperwork. You may have a PPI policy without realising but don't make a false claim.

2. If you took out the policy when you were self-employed, had a pre-existing illness or other cover, you've paid out money you didn't need to.

3. Write direct to the lender, now, in case a cut-off date is agreed.

4. If refused you can appeal to the Financial Ombudsman Scheme. You may have to wait up to a year.

5. If the mis-selling firm has gone out of business you may be able to claim through the Financial Services Compensation Scheme.

6. Don't get excited by messages from claims management firms saying you're entitled to compensation. They have your contact details but not financial records.

7. If you have no paperwork, ask the lender for loan details.

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Q: As a widow, I recently signed up to a dating site and was having a lovely conversation with a Spanish man. He, out of the blue, told me he'd been left a lot of money and wanted to use my bank account to get it into the UK. I asked all sorts of questions and decided to go along with it as we seemed to be getting closer.

He said his solicitor would need my account details. I got cold feet and he accused me of ruining our relationship. I said I trusted him and he suggested there was another way – if I sent £3,000 to his bank. I knew then it was a con, ended our "friendship" and alerted the dating site. It barred him.

I got sucked in because he wasn't from Holland or Nigeria, where I'd read about scams operating. What should I do?

Name withheld

A: I am sorry you were hurt but glad you didn't lose money. On social media and dating sites, if crooks know you're looking for love they assume you're more vulnerable. But, the same rules apply as to letters and emails: don't send money or account details to someone you don't know and trust. Thanks for telling the site. You should also report this to your trading standards department or actionfraud.police.uk and contact your bank if you divulged account details.

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