Loan Protection Insurance

A financial ombudsman has ruled that Barclays broke the ABI code of practice and mis-sole expensive payment protection insurance to a customer.

Barclays Bank has been ordered by the financial ombudsman to compensate a customer who was mis-sold controversial loan protection insurance.

And the ombudsman has slammed the bank for its failure “to comply with the Association of British Insurers (ABI) code of practice.”

In March, we revealed how Barclays made a 70% profit margin on these insurances which have in the past accounted for some 10% of the bank’s global earnings. Other banks also make large profits on these plans.

The near £7,000 compensation to Wiltshire resident Maria Stengard-Green comes after a long Jobs & Money campaign on her behalf.

Jobs & Money argued that the high-cost loan protection insurance policy she bought alongside a Barclays loan was inappropriate for her needs as she could not claim on many sections of the plan because of her self-employed status.

Ms Stengard-Green also maintained she was told she could not have a loan without buying the pricey loan protection insurance cover – an assertion denied by Barclays but now backed by the Financial Ombudsman Service.

Loan protection insurance cover should pay loan instalments if the borrower loses income through injury, illness or unemployment. The ombudsman decision against Barclays could open the floodgates for many others to complain of being mis-sold loan protection insurance policies.

Self-employed IT consultant Ms Stengard-Green took out a £15,000 Barclayloan in 1999 for improvements at her Marlborough home following a mailshot which said she has been “pre-approved.”

The seven-year loan was priced at 13.9%. But she was told she could only have it if she bought loan protection insurance. The unwanted cover pushed up the monthly repayment from £275 to £358 – 30% more, adding some £7,000 over the life of the loan and effectively raising the APR to 23%.

“The protection offered by the policy is useless,” she says. “I was not told I have to go bankrupt before I can claim on many sections.”

She realised how bad the loan protection insurance was when she asked for another loan in 2002.

She asked Barclays for a refund. It refused. She went to the ombudsman. She was turned down. Then she came to Job & Money, which spent much time pleading with Barclays. To no avail.

She tried the ombudsman again. Now the ombudsman says the “key issue is whether she was given the option of taking the loan without the loan protection insurance.”

Barclays claimed “it could not believe someone of Ms Stengard-Green’s financial awareness could believe loan protection insurance was mandatory.” It also cited her cancellation rights.

But the cancellation issue, the ombudsman says, was “immaterial as she was under the impression the loan was only agreed subject to mandatory loan protection insurance. I have seen no evidence Barclays offered the loan without the option of loan protection insurance, that she was given any literature saying it was optional, any quotation for a loan without loan protection insurance, or that any discussion took place about the suitability of a loan with loan protection insurance with reference to any existing policies she held.”

Barclays was aware of her self-employed status. But it failed to tell her she could only claim for unemployment in limited circumstances such as bankruptcy.

The ABI code says the “suitability of a contract will be explained to those who are unemployed or self-employed, those on part-time work and those with pre-existing medical conditions.”

The ombudsman concluded: “On the balance of probabilities, she was mis-sold the loan protection insurance and not offered the option of taking the loan without it. Even if the bank had offered the loan without loan protection insurance, and she had agreed to it of her own volition, I am of the view the bank did not comply with the ABI code.”

The ombudsman has awarded her £6,907 including loan protection insurance premium repayments, interest at 8%, and £200 for her distress.

“I’m glad to settle this but I was prepared to go to court,” says Ms Stengard-Green. “I shall use the money to pay off the loan. But now I want a new loan for further home improvements, so I rang a few banks and I was only quoted deals with loan protection insurance. You could hear them groan when I said I did not want a policy.”

Barclays Bank says: “We know that sales processes and practices as well as customer service are areas in which we should be constantly improving both in terms of the product literature we offer to our customers and the training we give to our staff.”

“For example, we were the first company to be accredited by the GISC (General Insurance Standards Council) for training and competence around selling general insurance products.”