How FOS Calculate Refunds

A question about : How FOS Calculate Refunds

The ways in which the FOS approach redress in different situations are set out below.

CREDIT CARDS

1. Where card account and the PPI are still in force.

If the consumer agrees to cancellation of the PPI the financial business should:

a) reconstruct the account by removing any premiums in respect of the PPI and any interest or charges in respect of those premiums;
b) if that produces a credit balance for any period, credit interest on that balance for that period at 8% simple per year; and
c) send the customer a statement showing the resulting balance on the account (with details of how it was calculated).

2. Where the card account is still open but the PPI has been cancelled.

The financial business should:

a) reconstruct the account by removing any premiums in respect of the PPI and any interest or charges in respect of those premiums;
b) if that produces a credit balance for any period, credit interest on that balance for that period at 8% simple per year; and
c) send the customer a statement showing the resulting balance on the account (with details of how it was calculated.)

3. Where the card account has been cleared and closed and the PPI has been cancelled:

The financial business should:

a) reconstruct the account by removing any premiums in respect of the PPI and any interest or charges in respect of those premiums;
b) if that produces a credit balance for any period, credit interest on that balance for that period at 8% simple per year;
c) pay the customer the difference between the revised closing balance and the original closing balance;
d) pay the customer interest on that difference at 8% simple per year from the date of closure to the date of payment; and
e) send the customer details of how the revised balance, the difference and the interest were calculated.

FOS may also consider it appropriate for the financial business to pay the consumer additional compensation for any distress and inconvenience he or she has been caused, including where the financial business rejected a complaint which it knew (or should have known) would be upheld, If they consider such an award is appropriate this will be specified by the adjudicator.

LOANS

These are examples full publication can be found on Link following them

Loan and PPI policy still in place at time of FOS decision.
Lender agreed for the cancellation of the PPI policy and restructuring of loan. E.g.
Overall loan repayments Ј250 per month but would have been Ј200 without PPI, term of policy was 60 months and complaint settled after 20 monthly payments.
· Return excess monthly payments of Ј50 x 20 payments up to date of settlement (Ј1000)
· Add interest to each payment of Ј50 at 8%simple, from date of each payment until lender repaid.
· Arrange loan to be restructured, so remaining 40 monthly payments reduced to Ј200
· Pay borrower Ј300 for extra inconvenience caused.

Loan and PPI policy terminated early before FOS decision.
Overall loan was for Ј23,000 (monthly payments Ј430) - but it would have been Ј18,000 with monthly payments of Ј340 without PPI. Policy term was 60 months; loan and policy cancelled are 23 monthly payments.
Borrower was required to pay Ј15,500 to settle the loan (after the business had taken account of the rebate of premium he was due of Ј1,200; but if he had not had PPI added to loan, the smaller loan of Ј18,000 would have cost Ј13,000 to settle at the same point.
So borrower had paid lender Ј90 a month more than he would have done, had the financial business not mis-sold the PPI policy; and Ј2,500 more to settle the loan after 24 months.
· Return 24 monthly payments of Ј90 to date of settlement (Ј2,160)
· Calculate difference between settlement costs incurred when borrower ended loan early and those he would have incurred had he settled the loan without the additional PPI element. (Ј15,500 - Ј13,000 = Ј2,500) pay difference to borrower.
· Add interest to each payment of Ј90 at 8% simple, from date that excess was incurred.
· Pay borrower Ј400 for extra inconvenience.

Loan and PPI policy ran to term before FOS decision
Overall loan was Ј7,500 (monthly repayments of Ј250) - but it would have been Ј6,000 with monthly repayments of Ј200 without PPI. Term of Loan and policy 36 months. So borrower had paid Ј50 more per month than if PPI not been mis-sold.
· Return Ј50 x 36 months of the loan (Ј1,800)
· Add interest to each excess payment of Ј50 at 8% simple, from date that excess was incurred.
· Pay Ј200 for extra inconvenience.

SUCCESSIVE SINGLE-PREMIUM PAYMENT PROTECTION INSURANCE

The exact approach to calculating compensation will depend on the overall circumstances of the individual complaint. In particular the calculations of compensation will vary according to the present status of the most recent loan and PPI policy. The financial business will be expected to consider the four scenarios set out below to ensure that the calculations are appropriate.

1. the most recent loan and the most recent PPI policy are still in force;
2. the most recent loan is still in force but the most recent PPI has been cancelled or has expired;
3. all the loans have been settled early and all the PPI has been cancelled;
4. the most recent loan and the most recent PPI policy have run the full term.

plus also additional compensation for any distress/inconvenience including where the financial business reflected a complaint which if knew (or should have known) FOS would uphold.

Subject to the consumer agreeing to cancel any PPI policy that was mis-sold and is stillin force the financial business should:

(A). In respect of each loan:
- recalculate the loan and the payments to what they would have been if the consumer had taken the loan without PPI
- repay to the consumer the amounts by which the payments actually made exceeded the recalculated payments;
- pay the consumer interest on each of these amounts at 8% per year simple from the date each payment was made to the date the compensation is paid;
- recalculate the balance that would have been outstanding at the end of each loan had the recalculated loan not included PPI.

(B) Calculate how much of the balance that was carried forward to the subsequent loan related to the cost of the PPI policy taken out for the previous loan: and
- repay to the consumer all amounts paid under each subsequent loan in respect of the carried forward balance, including interest and charges;
- pay the consumer interest on each of these amounts at 8% per year simple from the date each payment was made to the date the compensation is paid.

(C) Where the most recent loan is still in force and it includes the cost of the most recent PPI policy and/or any balance carried forward from the cost of previous
PPI Policies, the financial business should restructure the loan or arrange for the loan to be restructured so that the balance is reduced to the level that it would
have been if it had not included any of the costs of the mis-sold PPI policies.

(D) Set out in writing for the consumer details of the calculations under (A) (B) and (C).

default charges

Mrs Q had got a little behind with her loan repayments. The lender had added default charges, and subsequently interest on those charges. We required the financial business to arrange for the restructuring of the loan - and to write off any charges (and any interest on them) which would not have arisen, if the monthly payment had been the lower amount that would have applied if there had been no PPI policy.
-Thank you to Marshallka-

These are examples full publication can be found on this link
www.financial-ombudsman.org.uk/publications/technical_notes/ppi/redress....

Best answers:

• [QUOTE=maxdp;20257073]2. Where the card account is still open but the PPI has been cancelled.
  The financial business should:
  a) reconstruct the account by removing any premiums in respect of the PPI and any interest or charges in respect of those premiums;
  b) if that produces a credit balance for any period, credit interest on that balance for that period at 8% simple per year; and
  c) send the customer a statement showing the resulting balance on the account (with details of how it was calculated.)
  Max
  Do you have this official from FOS?
  I have spoken to them twice now re an Egg Credit Card PPI refund of premiums and 8% only, the first guy said that is all I was entitled to, the second guy said I should make a claim to them for interest charged and they would consider it because it seemed a reasonable argument - he said that the statement quoted did not emanate from them.
  If you have it, I would like to refere to is origin in my complaint.
  Thanks
• Hi cannot send a copy as am away at moment. The information came to me from a letter they sent me. Have you had a look on their web site on how they settle these.
• Max--just a comment in red
  Quote:
• Thank you Turboman that makes sense.
• I have just heard from the FOS saying Welcome Finance have agreed to settle my PPI claim against them.I payed off my loan with them early in fact it had run 3 months of a 3 year term when i settled it.Looking at my settlement figure of Ј5321 on a Ј4000 loan i do not think i got my full entitlement of PPI refunded when i settled.The PPI cost Ј1835.Will the FOS took this up with Welcome and force them to pay it?
• Have updated information in first post and have included how to work out refinanced Loans. Or in fact how the Business should do this.
• Max can you explain in simple(for me!) terms section B of the new bit you have added thank you.
• OK Will give it a go. If you say paid 1000.00 of PPI on your first loan and they refunded the balance to you. Well when you refinance to your second loan because you paid 1000. of PPI on the first loan you would not have paid so much off the balance on that loan so that 1000.00 would make you take out 1000. extra on the second loan. etc do you see what I mean.
• Yep got that but how does the refund work? getting myself confused in what gets taken off that hasnt been paid yet and what gets paid back that has been paid!
• OK It is the same as the other in as much as they have to calculate the three loans as if you had never had PPI so they will work that out then deduct the refund you would have been given when you settled and refinanced. I understand the banks are getting a program together so they can work out these refunds. It does not always work out more though so I am told hopefully FOS will be able to support with this when decisions are being made.
• Thanks Max, that now makes sense.
• Thanks maxdp, for the post.
  Can someone please help me determine whether PPI refunded by the bank has been calculated properly?
  Details of the loan:
  loan - Ј15,000.00
  repayment protection Ј6,095.55
  Date loan was taken out - 17 June 2005
  Term of loan - 84 months.
  PPI refunded on 08/08/09
  PPI Premium - Ј6,095.55
  Interest calculated on PPI - Ј1685.56
  Total amount refunded = Ј7781.11 (08/08/09 )
  I would like to know whether that's the maximum the bank should be paying me back?
  regards, tigerpsg
• Hi there
  Hopefully someone will be along to have a look for you soon, sorry I am not the one to work out calculations...., good luck though.