For many years First Plus was the UK market leader with regard to secured loans. A secured loan is a debt that uses something of value, E.g. a house or a car as collateral. This means if the borrower defaults on the loan the lender can force the borrower to sell the collateral to repay the debt. A borrower who takes out a loan secured against their home, therefore, could risk losing it if they fail to keep up repayments. For this reason, secured loans have always been somewhat controversial.
In 2006 the debt charity Credit Action launched a campaign to try and persuade television personality Carol Vorderman to stop endorsing First Plus. It argued that this type of borrowing should always be a last resort and should not be advertised as a one-size fits all solution to money problems. It was claimed, in fact, that secured borrowing of this type is only really suitable for as little as 3% of those who have it.
In 2008 First Plus announced it would no longer be offering new loans. The decision has been blamed on a combination of falling house prices and issues arising from the Financial Service Authority’s investigation into the sale of Payment Protection Insurance.
For many years First Plus had made significant profits selling Payment Protection Insurance. The cover is designed to cover debt repayments when a borrower is unable to work due to accident, sickness or involuntary unemployment. Where a borrower is securing a loan against their home there is clearly a huge incentive for them to take out this kind of cover. The trouble is that PPI is very expensive and has is not suitable for everyone.
The cost of Payment Protection Insurance can vary, but averages between 13%-25% of the value of the loan. On a typical £15,000 loan, for example, a customer may expect to pay between £1950 and £3750 for insurance. The cover also attracts the same rate of interest as the loan, though, so it can add substantially to the customer’s debt.
As well as being expensive loan protection insurance also has a very low pay out rate. Of all the customers who find themselves involuntary employed or sick and try to use their policy only approximately 15% are successful. This means for every £100 spent on loan PPI the lender makes approximately £85 in profit! It is easy to see, therefore, why PPI was such a valuable product to lenders such as First Plus. It was, in fact, often more profitable than the interest earned from the loans themselves.
The 2006 investigation by The FSA shone a light on the problems surrounding PPI and made customers more cautious about purchasing the insurance. The slump in sales is said to have affected First Plus significantly and contributed to the business’s decision to no longer provide new loans.
While sales of PPI dipped, The FSA’s investigation also saw a significant rise in the number of customers making complaints regarding Payment Protection Insurance. The FSA’s reported had highlighted the issue of mis-selling and an increasing number of customers began to realise they had been sold a policy that was, quite simply, unsuitable for their needs. Many of these people referred their complaints to The Financial Ombudsman Service, had their complaint and received a PPI refund. Almost overnight, PPI changed from being a cash cow for lenders to significant financial drain.
If you have been mis-sold a PPI policy by First Plus you have the right to make a complaint. You can make a complaint even if your loan is paid off and you could be owed thousands.
Despite their decision to stop providing loans in 2008 many people are still submitting complaints regarding First Plus PPI mis-sales. Between June and December 2010 more than 400 new complaints were submitted to The Financial Ombudsman Service for review. Of the cases resolved during this period 86% found in favour of the customer. This statistic suggests First Plus may have mis-sold a significant number of policies and many more customers may be entitled to make a claim.
We aim to get a full refund of premiums paid for every customer as well as 8% interest as standard. To start your claim today, call our team on 0207 471 2000.