The Financial Services Authority has revealed that payment protection insurance customers with a single premium will now be able to get a refund on new or existing schemes.
Premiums will now include nil refund terms in contracts with new customers and not apply nil refund terms in contracts with existing customers.
Single premium policies involve the consumer paying for the cover for the duration of the loan by a lump sum at the start of the contract. The premium is usually added to the total value of the loan with interest charged on top.
The agreement, secured in collaboration with a number of trade associations, contact existing customers if their contracts contain nil refund terms to inform them of how refunds will be dealt with in practice.
The FSA demands providers to calculate the refund fairly, taking into account their reasonably incurred costs, which may or may not result in a pro-rata refund; and they must also include new policies examples or a table to illustrate how refunds will be calculated to improve transparency.
While there are firms that already provide a refund, the agreement is designed to make refunds clear and fair.
Customers may not receive any refund if they cancel very close to the end of the policy or if they have already made a successful claim under the policy.
Clive Briault, managing director of retail markets at the FSA, says: This is an excellent outcome that delivers concrete benefits for consumers. When properly sold, PPI can provide valuable protection. But we have been particularly concerned with so called nil refund terms.
These are contract terms that prevent consumers from receiving a partial refund if they cancel a single premium PPI policy for any reason. Such reasons could include consumers repaying the associated loan early or no longer being able to make claims due to changed circumstances.