Some £9 billion has been set aside to repay premiums on miss-sold policies. However, in some cases instead of being paid directly to the claimant, the payment is being taken instead and used to reduce the size of debt owed to the bank by the individual.
Banks and building societies are running the ploy legally. They are allowed to ‘set-off’ cash held in a customer’s name against any overdue debts and use it to reduce the size of the existing loans without warning.
Critics say hard-up borrowers may have more pressing loans to repay elsewhere, often at higher rates of interest, and some need the cash to ward off debt collectors.
Steve Rees, adviser at debt management company Vincent Bond, says:
‘You should have the right to prioritise which debts get cleared first because you might owe a more aggressive company that is threatening to take you to court.’
However James Falla, personal debt advisor at BeatMyDebt.com disagrees, saying:
“Banks should not be penalised for taking a more lenient stance when it comes to debt collection. If they are prevented from off-setting their own debts because they are not shouting the loudest, then it is simply going to encourage more banks to take early legal action to collect their debts.”
“This would be in no-one’s interest, certainly not the individual who is trying to deal with their debts using a debt management plan.”
‘As with all financial services institutions, Nationwide has the right to set PPI compensation payments off against debts due on the account to which the PPI applies. We believe this is a fair and reasonable approach and it only applies to our customers in arrears’.
‘Customers who have a loan with us which is not in arrears can choose whether to use any PPI redress they receive to set off against their loan or have a payment direct to them by cheque.’
James Falla believes that people who are struggling with their debts should not be discourage from making claims:
“What we are talking about here is people who owe a debt to a bank that they cannot afford to pay. Anything that will help them reduce this debt is an advantage and people should not be discouraged from making PPI claims in these circumstances”
“It may well be the case that the same individual has other debts which they are unable to pay. However with one less debt to manage, resolving the remaining issues will be that much easier.”