The Office of Fair Trading has set its sights on the issue of payment protection insurance (PPI) mis-selling. According to John Fingletom, OFT Chief Executive, "'Following the work we have undertaken it is clear that many consumers are failed by PPI - insurance which gives them a poor deal and often less protection than they think. There is limited evidence the industry is taking steps to improve the situation, but we believe they will not make major improvements to competition in the market. Given our evidence and the scale of this market, our provisional view is that it would be appropriate for the Competition Commission to investigate further"

The OFT said the insurance, which promises "peace of mind" for borrowers by guaranteeing their debt repayments in the event of sickness, accidents or unemployment was "overly complex", provided "less protection than customers think" and was "poor value".

While not all payment protection insurance was sold inappropriately, it is estimated that half of policies were. And while some policies do provide a benefit to consumers by paying loan amounts due in case of sickness, injury or the loss of a job the concern of the OFT is that many policies are overly complex and fail to make meaningful payments. In 2005 only 11 per cent of policy premiums were paid out for PPI claims, as compared to 74 per cent in the auto insurance industry.

Of concern is the fact that PPI was and is typically sold at the along with the purchase of a new line of credit, a practice that hinders the consumers ability to shop for a better offer and minimises competition.

PPI policies have also come under attack for high commission rates, poor product value, aggressive selling tactics, being overly complex and offering a lack of transparency.

Working with not-for-profit groups like Myvesta, consumers have been able to obtain massive refunds of PPI amounts paid through expert representation.

Currently the banks that generate the most profit from PPI, and have the most to lose from a clampdown, are Lloyds TSB, HBOS, Northern Rock, and Barclays. The very same groups that are also under attack for unfair credit card and bank charges.

Creditors have been fearful of having a PPI case tried in court court for fear of generating massive and easy claims against them. The most recent case was against Lloyds TSB and was scheduled to be heard in the London Mercantile Court.  But before the case could be heard by the court it was swiftly settled in full by Lloyds.

Of concern is that a significantly large group of consumer were pressed at the time of the loan or sale to take out PPI policies and they believed that it was a requirement of the transaction. This practice led to consumers essentially being forced to purchase overly expensive PPI at a time when they really had no obligation to purchase it.

So where does this all leave consumers? Well if you have been sold a payment protection insurance policy in the past you may want to have it reviewed to see if it was actually mis-sold and to see if it may be eligible for a refund. Unfortunately there is no clear and easy way for consumers to do this themselves without pressing an aggressive claim against the bank. A better effective tool is to use a reliable firm to evaluate and process your claim for you.

One issue that makes the prosecution of the claims so difficult is that the policy issuer does not have the largest parts of the funds paid for the policy. Typically 60 per cent of the policy price was paid out to the sales people selling the policies. When a consumer makes a claim against insurance company X, they will then go after selling company Y in an attempt to claw back the commission they paid. This process results in delay, stagnation, obfuscation and often leaves the consumer in a position without a refund unless the consumer has the skills and experience to pursue these issues.

So while it might be possible for consumers to recapture PPI costs previously paid, the banks and insurance companies involved in the selling of these policies are not going to make the claim process smooth or easy. They also fear the opening of claim floodgates and will tightly hold the doors closed.