British banks have sold payment protection insurance (PPI) to millions of consumers leaving many of them completely unaware about the scope and limit of the cover it provides, consumer magazine Which? says.

More than 9.8 million Brits have PPI attached to their credit cards. The research revealed that 1.3 million of those (13 per cent) took out the insurance because they mistakenly believed that it was a condition for the credit card deal being approved or that their application was more likely to be accepted with it.

Payment protection insurance is sold alongside credit cards, loans or mortgages in order to cover repayments if people are unable to work because of illness or unemployment.

However, credit card PPI quite often merely covers the necessary minimum payments each month, meaning the outstanding balance might never be reduced. In addition, there are often ‘significant exclusions’ attached to the policy, including pre-existing medical conditions, fixed-term contracts or self-employment.

On average credit card PPI costs consumers £127.60, and is consequently worth over £970million a year to the industry. This accounts for almost a quarter (22 per cent) of the whole PPI market.

It is therefore not surprising that 28 per cent of people were told by their providers that having credit card PPI would be a good idea, but just an average of 11 per cent of all claims are ever successful. Doug Taylor, Personal Finance Campaigner at Which?, had only harsh words for the product:

“Credit card PPI is a modern day snake oil – it’s a useless product, expensive and poorly designed. As the credit crunch continues to take hold, people want to be protected and have peace of mind, but credit card PPI, like a house of cards, won’t give you the support you need.”

“In this time of economic uncertainty, people are effectively throwing away £970 million each year, when they should be encouraged to seek independent financial advice about protecting their finances as a whole,” Mr Taylor added, “No one should have to take out PPI on their credit card.”

He advises consumers to follow a simple checklist to find out if they could reclaim their money including the following questions: did the advisor make it clear that the insurance was optional; were the ‘significant exclusions’ made clear; was it clear that the policy had to be paid upfront?

It is also important to ask whether the adviser explained that, in case the policyholder had to borrow to pay for the cover in one single premium, the amount would be added to the loan. If the PPI policy expired before the loan or credit card agreement, the adviser should inform the policyholder that he is paying interest on a cover that is no longer in force.

Bradley Askew, Managing Director of consumer compensation company Claims Financial commented: “It is regrettable that so many people we speak to have this infamous insurance on their credit cards and so many don’t even know until we tell them.

“The credit card companies simply say that the client should have read and understood the small print but our view is that these expensive and often useless insurances should not be added automatically unless the consumer says they want it and secondly they have a personal need for it.

“The big banks argue every case but so far we have won every case like this we have taken on,” Mr Askew added, “I encourage consumers to check their credit card statements to see whether they are a victim as we are not talking about a few thousand mis-selling cases. We are talking about millions. The important thing is that they complain to make sure the banks stop acting unethically and unfairly”.

Find out how to reclaim mis-sold payment protection insurance.

© Fair Investment Company Ltd