Why only 8% interest

Ed.Willink

Re-instatement of mis-sold PPI currently erases the PPI and puts the repayments in an 8% simple rate interest rate account. Why?

1) The PPI was a mandatory part of the loan product. The repayments that actually happened are for the loan product, therefore re-instatements must repay the loan product.

Is the bank in breach of contract when re-instating at 8%?

2) At the time the loan was taken out, we may ask the lender the question. "Your bank has miscalculated the repayments. How would you like the repayments re-instated?"

a) Put the PPI repayments into an 8% simple rate savings account
b) Put the PPI 'borrowing' lump sum into an 8% simple rate investment account
c) Use the PPI repayments to repay the loan early

Standard consumer guidance is to repay your highest rate loans first. Yet the FCA recommends an 8% simple saving to pay off a 26.9% APR loan.

Is the FCA advice negligent?

[Deleted User]

Looks like you may have misunderstood. You get the associated interest plus the 8%.

If you then want to use the refund to repay early, that's fine.

-taff

The interest on the capital of the loan and the interest received with the rderess are two different things.


No one gets 8% on any savings, so your three tier question doesn't make sense.

[Deleted User]

Ed.Willink wrote: »

Re-instatement of mis-sold PPI currently erases the PPI and puts the repayments in an 8% simple rate interest rate account. Why?

You appear very confused.

Nothing is being "reinstated".

It's not your loan which is being redressed, only your PPI.

The PPI is refunded in it's entirety along with 8% simple interest.

Your loan and the APR you agreed to remain as before.

Ed.Willink

Thanks, sort of. I'm certainly confused since the PPI compensation offer is so opaque as to make understanding impossible. The FOS do not seem to require the bank to explain where their unsubstantiated figures come from.



@zx81: I like your reply best, but do you have a reference that substantiates "the associated interest plus the 8%"? Unfortunately even seemingly simple terms such as "associated interest" have many meanings as you permute "finance charge", "monthly payment", "accumulated monthly payments" with "loan, "PPI", "loan+PPI" to try to identify what is meant in context.


Your replies prompted me to go back to first principles and try to work out how early settlements of my loans were calculated. From this I can at least tell that what the bank has offered on the settlement date (prior to the subsequent 8% interest period) is actually less than the sum of the PPI repayments and the PPI settlements; i.e not even 8% interest on repayments during the loan. These calculations are made a little harder by my bank ignoring one of the PPI repayments and using a four rather than two month deferral before computing the settlement.



@Moneyineptitude: I fully understand that the bank seeks to offer the minimum compensation possible. PPI then 8%. However my observations are that the bank is charging 26.9% for a borrowing concurrently with a compensatory 8% saving and that the money nominally intended for PPI repayment was contracted to repay the loan product and should still do so after revising the contract to remove PPI from that contract. Consequently I consider that the contract and common sense require that each PPI payment should be used to repay the loan early.

[Deleted User]

Associated interest means any interest that you paid on the PPI. So you receive a refund of your PPI payments, the interest charged on those payments, plus 8% as compensation.

You can then use that redress to reduce the loan, gamble on a horse or buy large quantities of Haribo, depending on your personal preferences.

Ed.Willink

Obviously I cannot use the compensation to gamble on a horse, since with 17 years hindsight, I would obviously pick retrospective winners upsetting bookies and common sense. However I can use it to repay the loan, on the day that the repayment was direct debitted and IMHO the bank should do that automatically as part of their compensation calculations. The bank took the money to repay a loan contract; they MUST use it for the contracted purpose rather than start a very poor value concurrent compensatory investment.

[Deleted User]

Ed.Willink wrote: »

I fully understand that the bank seeks to offer the minimum compensation possible.

The redress is defined. As stated, you get a refund of all PPI paid, plus interest. It's not somehow negotiable. This money is not put into a "separate account paying 8% interest", it's either paid as a cheque or into your current account as a lump sum. Once paid, the money will only continue to accrue interest at the rate of the account into which it is invested, which will obviously not be 8%.

If you then want to use this redress to pay off your loan, then that is a separate transaction which you must request rather than expect to happen automatically.

Remember, you have complained about the insurance added to your loan-not the loan itself. The Bank have only agreed that the PPI was mis-sold.

Many people with successful PPI complaints keep the redress and continue paying off their loan, mortgage or credit card debt just as they did before.

So the money is yours to do with as you please.

Ed.Willink

Sure, if I receive redress today, I can repay the loan / gamble it on the horses / ... But the loan cascade was repaid (early) in 2002.
The bank has agreed, under Plevin duress, that the PPI was mis-sold and must therefore re-instate the position that would have existed if no PPI had been sold. Totting up all the repayments towards PPI and then applying 8% re-instates disadvantageously today, rather than expediently at the time of each PPI misappropriation.
For a cascade of loans, the PPI settlement of the preceding loan should be used to reduce the size of the subsequent loan at the time that the loan was taken out, thereby getting 26.9% APR benefit, rather than 8% simple for the duration of the loan. This re-instates the misappropriate PPI settlement promptly.
For each loan, each PPI repayment can be re-instated directly. I identified the choices in my original posting. Some form of 8% is very nice for the bank. Repaying the loan contract is much nicer for the borrower and is in accord with credit guidelines and the loan contract.

[Deleted User]

So you repaid the loan 16 years ago?

"Cascade" and "Reinstatement" are not adjectives generally used in this regard, so I'm unsure what you mean.

PPI redress does indeed put you back into the original position you would have been in if PPI was not applied.

The PPI is refunded in full, along with any associated interest and an additional compensatory 8% interest payment.

You won't be receiving any more I'm afraid.

If you remain dissatisfied, ask the Bank to explain their calculation and, if still confused, you have the right to refer your complaint to the Ombudsman.

-taff

Redress IS defined.
You get what was paid in PPI back. You get any interest that was added to the PPI back. Then you get 8% on top for your inconvenience.


If you had a consolidated chain of loans, you get back what you paid in PPI plus interest added to it that formed part of the loan total payment, minus any rebated PPI that was performed when you consolidated loan A with loan B and so on, plus 8% interest



If you repaid the loan early, you get back what you paid in PPI plus any interest added to it as above, minus any rebated PPI payment from the early pay off, plus 8%.




I'm not seeing why this is so difficult. It's quite plain on the FOS website.


And Plevin is something entirely different and relies on being paid out on a REJECTED PPI complaint.