Mis-selling: A Financial Plague

Imagine buying a laptop. You go to the store and have a look at a range of laptops that the seller shows to you. You inform the seller that you need a laptop primarily to watch movies on your DVDs. He recommends you a model and you finally purchase it. However, after coming back home, you realise that the laptop does not have a DVD drive. The laptop is not a faulty piece. It works fine. Still, it is not the object you were looking for.

This was a simple non-financial example for mis-selling. Mis-selling is a practice in which you are sold a product or service which is not suitable for you. You are either not fully informed or wrongly informed about the product. It is a very common practice in the financial sector. Banks and financial institutions often sell various financial schemes and policies without giving full details to the buyer. They avoid explaining certain clauses which the buyers should know about prior to making the purchase. This is usually done to earn money without the knowledge of the buyer. The person who is selling the product is supposed to explain every little detail about it while selling. They should also explain all the risk elements associated with the product or policy being sold. However, people are often cheated and their ignorance or innocence is taken an undue advantage of.

If you have been mis-sold a product, you don’t need to stress out. If you can prove that you were wrongly sold the product, you can claim the compensation in the form of a refund from the lender. The procedure may take a while as most of them are very complex, but at the end of the day you have your money back in your pocket (often with some extra interest).

There are many examples of financial mis-selling. Following are the three most common ways in which financial products are mis-sold to the customers:

Payment Protection Insurance

Payment Protection Insurance (PPI) is a type of insurance wherein the provider financially covers the policy buyer if they are unable to repay their loan, mortgage or credit card repayments in case of unforeseen circumstances occurring such as accident, mental or physical illness or death. If any of these events stop the buyer from earning a regular income which inhibts the customer from making repayments towards their loan, mortgage or credit cards , the provider ensures they cover the repayment costs. It proved to be a really helpful service, until most financial institutions started misusing it. In no time, the financial institutions started mis-selling PPI. The policy was sold secretly when the customers were sanctioned loan or credit. They were never informed about the policy. Also, many financial institutions manipulated the customers into buying the policy. They were told that it was mandatory to buy the policy along with the loan or credit, and they will not be granted loan unless they buy PPI along with it. This rendered the buyers helpless, with no option but to purchase the policy. Many financial institutions masked some clauses and sold the policy. The policy was glorified and only the rewards were highlighted while selling it. The primary reason for the mis-selling was to earn more and more commission. The lenders never really cared if the policy was beneficial to the buyers. All they were concerned about was getting money out of their greed.

This practice also gave rise to the infamous PPI mis-selling scandal. Millions of customers were wrongly sold the policy and millions of pounds were earned as commission. However, a lot of victims claimed compensation and majority of them received it as well. There are still a lot of buyers who have either not claimed the compensation or they have not received it. There is a specific procedure which is to be followed to claim PPI refund. If you have been mis-sold the policy and come to know about it, you are supposed to get in touch with your lender first. You may also have to produce the documents which prove that your policy was mis-sold. If the lender agrees to pay the refund, your case is solved. However, either if they do not respond or respond late, you can approach the Financial Ombudsman Service (FOS). FOS is an independent body concerned with solving the issues between a lender and a mis-sold buyer. You need to produce all the documents necessary to the FOS, and its decision is considered as final. Still, if you feel that you have been treated in an unfair manner, you can take your case to the court.

Hence, if you have sanctioned a loan or borrowed credit from a financial institution, you should check the documents carefully to see if you have been mis-sold PPI.

Mis-sold Mortgage (Including Endowments)

Mortgages are a way of earning money when the financial conditions get really low. People really count on the mortgage providers while taking the mortgage. However, there are certain providers who take advantage of this and wrongly sell mortgage schemes to their buyers.

There are cases where the expiry date of mortgage is after the buyer’s retirement date. Certain providers also hide the commission clause while giving the mortgage. They purposefully do not mention that the buyer is supposed to pay commission to the advisor for their services. Later, you are charged this interest which you have to pay once you opt into the policy.

Also, if you were advised to self-certify, i.e. borrow money without proving your income, or told to state your income being higher in order to make you borrow more. This may initially sound beneficial for the buyer, but is ethically wrong. Also, such providers play smart. They make you borrow more so that you pay more interest on your mortgage. Ultimately, it is the provider making money.

Various mortgage providers also advise you to change lenders and when they do so, they are not informed about the extra fees and charges that the buyer has to pay. They may also have to pay a penalty for switching the lender. None of this is told to the buyers by the providers. There may also be certain cases in which you are given a fixed-rate mortgage and were advised to re-mortgage, luring you into a better deal. However, the providers never inform you about the penalties you have to pay on leaving the fixed-rate mortgage early. You pay the penalty and they earn this extra money.

Mis-sold Investments

Making investments is believed to be one of the most secure ways of ensuring income in the future. If you deposit a big amount of money or lock it in a giant investment, you are very likely to earn back more than you invested. However, there are certain investment companies and agencies that mis-sell investments.

An investment can be considered as mis-sold under various circumstances. The provider may not inform the buyer about the risks involved in the investment. The buyer makes the investment thinking the money is sure to increase in value, but the value may also drop depending on market forces. Many lenders also never reveal where and how the buyers’ money will be invested. All they do is ensure the buyer that their money is safe and that they will get huge returns on the investment. The buyers are often so excited by the offer that they never ask the providers about the nature and use of their money. They may land up into trouble if the money is not used in a right and ethical way, but then it will be too late.

There are also cases where the product you invested in doesn’t suit your needs. The providers may paint a glorious picture of a product or property while you’re making the investment, but as time passes, you may realise that your money has been locked at the wrong place. By then, it is too late and it is not possible to claim back the money so easily. This usually happens in the case of real estate.

Thus, there are various financial products, schemes and policies which are highly beneficial to you. However, you should also always be careful about the policies you buy. You should always check every clause and detail of the policy and ask all the doubts you have to the lender before you make the purchase. You can also hire an efficient and qualified financial advisor to monitor your activities. This makes your job easier as they are more experienced and know the financial market better. If you are still mis-sold a financial product, you can always immediately inform your providers about your case. Always keep a copy of all the documents so that they can serve as a proof of the policy or product being wrongly sold to you. Always stay alert and rational in your approach. Never give in to your temptations. This is what the providers look for. They take undue advantage of your greed, innocence and ignorance, and make money out of it. Also, never let the money go. Even if you’re unsure, go through multiple checks until your case is certain. It’s your hard-earned money. Don’t let it slip into the pockets of anyone who doesn’t deserve it.