IVA and PPI claims

lilla25

We have an secured loan which is not part of our IVA. We have recently been awarded a large PPI claim payout. Our IVA supervisor says we must pay the sum into our IVA. This means we will continue to pay interest on an insurance that was mis-sold to us. The loan company says the only way to get rid of the interest is to re-pay the lump sum to them but the IVA supervisor says we can't. Does anyone have any idea of the legal situation for us? Are we obliged to hand the money over to the IVA or can we tell them it can legally be repaid to the secured loan company?

National_Debtline

lilla25 wrote: »

We have an unsecured loan which is not part of our IVA. We have recently been awarded a large PPI claim payout. Our IVA supervisor says we must pay the sum into our IVA. This means we will continue to pay interest on an insurance that was mis-sold to us. The loan company says the only way to get rid of the interest is to re-pay the lump sum to them but the IVA supervisor says we can't. Does anyone have any idea of the legal situation for us? Are we obliged to hand the money over to the IVA or can we tell them it can legally be repaid to the secured loan company?

Hi lilla25

First of all, could you kindly confirm whether the loan in question is secured or unsecured? I have highlighted above where you have used both terms.

Many thanks

Dennis
@natdebtline

lilla25

Sorry. The loan is secured and not included in the IVA arrangement.

National_Debtline

Hi again

Thanks for clearing that up - I figured it was likely to be secured (hence it being excluded from the IVA) but wanted to be sure.

I should also have asked you to confirm that when you referred to a PPI claim "payout", you meant "refund" - as you then go on to say that it was mis-sold. If it were a normal claim under the PPI policy for, say, injury or illness, the payments would usually be credited straight to your mortgage account. I will assume that you meant a "refund" for the purposes of this reply.

The obligation to report any windfalls to your IVA supervisor - such as this refund - will usually override any other considerations. If you were to do anything else with this sum, you could risk the IVA being terminated.

A separate issue is whether you should be paying interest on a PPI policy which has been acknowledged as inappropriate. How did the refund come about - was it as a result of a formal complaint you made, or was it a voluntary gesture by the lender/insurer?

Dennis
@natdebtline

DorisTrousers

My understanding of PPI redress is that it should put you in a situation where you would be had you never taken the policy out. So, a refund of premiums, interest paid etc. The policy should no longer exist, so you shouldn't be paying interest on it. It seems very likely that it needs to be handed over, but, as ever, check the wording of your own proposal.

National_Debtline

DorisTrousers wrote: »

My understanding of PPI redress is that it should put you in a situation where you would be had you never taken the policy out. So, a refund of premiums, interest paid etc. The policy should no longer exist, so you shouldn't be paying interest on it. It seems very likely that it needs to be handed over, but, as ever, check the wording of your own proposal.

Yes, I would expect the loan to be recalculated as if no PPI premiums had ever been payable. That does not appear to have happened here, however, which is why I am wondering if the lender voluntarily refunded the PPI - perhaps they were trying to pre-empt a barrage of PPI reclaims.

Dennis
@natdebtline

lilla25

Thanks very much for your response. It was a refund and not a claim. I spoke to the company that made the loan and sold the PPI and asked them if, as the PPI was miss-sold, shouldn't our monthly repayments (the loan is still active) be reduced by the amount of the interest charged on the original PPI part of the loan. They replied that the PPI is not a separate part of the loan but just combined with it, meaning there is no specific sum that directly corresponds to the PPI itself and that therefore the only way to avoid paying interest on the PPI is to repay the original sum. In our case the PPI loan was £10,000. We received £5,000 back through no claims. We have now received a compensation payout of £10,000. The IVA supervisors say this has to go to the IVA even though this means we will continue to pay the interest on the miss-sold PPI portion of the loan. I was hoping as it is a secured loan, that the PPI payout would be viewed as separate from the IVA. If not, then the PPI compensation has been pointless to us personally as it will in no way have returned us to the position we would have been in if we had never taken it out, which I thought was the whole point of it. Instead, we'll just have the same secured repayments as before and our unsecured creditors will get the benefit of the compensation. I realise we have very little power in this situation but it seems bizarre that the compensation of a miss-sold policy somehow doesn't apply to us. If the loan was no longer active and it was simply a matter of handing over money, I wouldn't object. I accept the creditors take precedence over us actually having the cash itself but the reality is that we will pay out thousands more in interest on the portion of the loan that was miss-sold. It seems illogical to me but I also want to set my mind at rest that if we have to hand it over, we've done so with all the necessary advice and information available. Incidentally, the refund was not offered by the loan company but by the FSCS.
Thanks for your help.