You can claim for PPI compensation against a bank you still owe money to. Whether or not you will be paid the cash you are awarded will depend on the status of your debt.
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- Claiming for PPI against a debt you still owe
- Can you claim for PPI against an account in arrears?
- Can you keep the compensation if you are in a DMP?
- What if the debt is already settled?
- What if the debt is Statute Barred?
The deadline for claiming for PPI was 29th August 2019. If you did not make your claims before that date you are no longer eligible. No new PPI claims can now be submitted.
Claiming for PPI against a debt you still owe
There is nothing to stop you claiming for PPI compensation against a debt you are still repaying. However if the claim is upheld before sending you the cash the bank will check the status of your account.
The money will be paid to you given non of your accounts are in arrears. The payment is normally in the form of a cheque. This money can then be paid into your account with the bank or anywhere else you choose.
You are free to decide what to do with the money you have received. It can be used for whatever you like and does not have to go towards paying off the debt you owe.
Can you claim for PPI against an account in arrears?
You can certainly claim for PPI compensation if your account is in arrears. The fact you are struggling to repay the debt has no bearing on whether you were mis sold PPI.
However you may not directly receive any compensation you are owed. This is because of the banking Set Off rule. It means that if your account is in arrears the bank can use the compensation they owe you to pay off their debt.
Your arrears do not have to be on the same account as the one you claim for PPI against. The Set Off Rule can be used to repay any account in your name with the same bank which is in arrears.
If your account is in arrears it is of course still well worth while making PPI claims. Any compensation paid will reduce the balance you owe meaning you will be debt free sooner.
Can you keep your PPI Compensation if you are in a DMP?
If you are in a Debt Management Plan (DMP) your creditors have agreed to accept reduced payments towards your debts. However despite this agreement your account is still in arrears.
In these circumstances you can make claims for PPI compensation. However the Set Off Rule is still likely to be used. As such any cash you are awarded will be used to pay off the debt you owe.
It has been argued that this practise is unfair. You may have other more important debts that you need to pay. However the bank can not be penalised for having agreed reduced payments with you.
A DMP can last for a long time. As such making PPI claims against the debts in the Plan can really help you. Any compensation paid will significantly reduce its duration.
What if you have already settled your debt?
You may have previously been struggling to pay a debt but have now paid it in full. In these circumstances any PPI compensation awarded will be yours to do with what you like.
However what if you settled with a lump sum payment? In these circumstances the bank may still argue they can use your compensation for Set Off. This is because the remainder of the debt still exists.
You may be able to fight this if you have a written acceptance of your settlement offer stating the remainder of the debt will be written off. In these circumstances there is no longer a debt to Set Off against.
Statute Barred Debt and PPI Compensation
If you have made no payment towards an outstanding debt for 6 years it may have become Statute Barred. This means the debt can no longer be legally enforced by the creditor.
You no longer have to pay this debt. As such you may think that if you claim for PPI against it any compensation awarded will be paid to you. This is not the case. It will be used to Set Off against the debt
Although you are no longer legally required to pay the outstanding balance it is not written off. The debt still exists. The creditor can therefore use any funds of yours they are holding such as PPI to Set Off against it.
It is unwise to claim for PPI against Statute Barred debt. Any funds awarded will be used to Set Off against the balance. The claim might also be an acknowledgement of the debt and mean it becomes enforceable again.
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Apologies if this is a stupid question. If the lender has agreed a settlement figure, and this has been paid, can they still apply the set-off rule. I ask because Nationwide have previously agreed settlement and taken payment for my partners debt. Now, after being judged at fault for PPI misselling they want to off-set. I had an IVA then won a PPI claim against HSBC. They did not try to apply this rule. I hope someone can answer this for me.
Hi Paul
This is actually a very interesting question. If the creditor has agreed to accept a payment in full and final settlement of the debt they are owed then I would argue they cannot then hold back PPI for further set-off. At the end of the day how can you set-off against a debt which by their own admission no longer exists. I would suggest you have a strong case to argue here. If you feel you would like any help with it please do get in touch.
My loan is 10 years old I got awarded ppi and they used it to pay off my loan I was on default and they hadn’t asked for a payment I had so many other debts to worry about I thought the debt had been over 6 years old and the company folded that they couldn’t do that is it worth challenging?
Any advise please I’m still in bad debt and the2k can pay off priorities
Hi KemZ
If I understand you correctly you believed that this loan was statute barred because you had not made payments towards it for more than 6 years. If this is the case then the debt is statute barred as long as no CCJ has been issued against you in the mean time. As such legal action cannot be taken to enforce it. However this does not mean that the balance has been written off. The debt itself still exists. It is just that it is not enforceable. Given this if you claimed for PPI then the loan company are within their rights to keep any compensation they owe you and off set it against the balance.
If you are still struggling with your debts please do give me a call (use the 0800 number at the top of the page). I would be happy to give you more advice about the best way to manage the problem.
My query is this….for example ……. if a person has been paid £3500 compensation on a Balance of £5800 and in the ‘settlement letter’ the Bank states that your Balance WITHOUT PPI would have been £2500 – they pay the Compensation of £3500 BUT your NEW Balance £5800 !!
The Bank’s argument is that IF they reduced your balance AFTER paying you Compensation then THEY would be paying YOU Compensation TWICE!!! …… So….. your new ‘repayments’ on the Loan is basically paying back the Compensation that THEY paid to you! How can this be putting you back in ‘the position’ you were if PPI was not (illegally) added to your original loan. I paid 47 payments off a loan of £6000 at £132.00 per month (£6204) and after receiving £3700 ‘compensation……….. my balance was almost £5000 !!
Hi Don
This does seem strange. All I can suggest is you request the bank to issue you a statement showing exactly what the original loan was and the interest charge on the loan itself. Then it stands to reason that the outstanding balance should be this total less the payments you have paid less the PPI refund now received. If it is not then you do deserve an explanation from the bank.