News - PPI Refunds Used To Pay Outstanding Debts

It seems that not all PPI compensation is making its way straight back to the consumer, with the lender instead using it to pay off outstanding debts.

Although this may sound like a good idea, banks and building societies are taking away the borrowers right to choose how their PPI refunds are returned. Around £9bn has been earmarked to repay consumers who have been mis sold PPI however in some cases funds are being credited to an individual’s outstanding debt rather than being paid straight back to them in full.

While this tactic is wholly legal it is sure to anger many borrowers who would prefer to use the money to pay off other debt which may have a higher rate of interest or might need the hard cash to ward off debt collectors, for example.

A spokesperson for leading PPI Claims Management Company, said:

“Anyone should have the right to be able to manage their own debts as there will clearly be repayments that need to be made more urgently than others. It can be very frustrating for a bank to just do as they please with a consumer’s compensation without any consultation whatsoever. “In fact, by taking this approach, while the banks and credit card companies may think they’re doing the lender a favour, it may not represent their best option in regard to their debt management.”

However, personal debt advisor James Falla disagrees: "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.”

Nationwide Building Society, one of the companies that employs such a tactic, have declared that they have every right to set PPI compensation payments off against debts due on the account to which it applies, considering it to be a “fair and reasonable approach.”

“Despite this not being ideal, people who are struggling with debt should not be discouraged from making a PPI claim,” added “Being able to reduce your debt in any way, particularly if you didn’t even know you were entitled to any form of PPI compensation, which applies to many people, can only be a good thing. The issue here is the absence of ‘choice’ – it’s the customer’s money at the end of the day and they should be able to do with it as they please.

“It may be the case that they would in fact prefer to write off some or all of the debt to the company giving the PPI refund, so everyone’s happy, however without that much-needed dialogue a borrower may be planning for a timely cash boost that never ultimately comes their way.”