Understanding PPI Calculations -- Settled Loans

[Turboman]

Right--back to the subject--this thread will be developed by Bill, Marshy & myself.

This initial post is an outline of where we are going. We are going to use FOS Guidelines, but later this month we will move onto the detailed proposed metods within the Policy Document.

The simplest concept to illustrate is a settled loan that has run its course with no complications,refunds or seyttlements



The FOS guidlines sayRefund as

• if no PPI was on the agreement
• + add 8% on each payment from date of each payment.

See one of our basic spreadsheets below which Bill has filled in the base details at the top & it thn opens out to produce a PPI Refund of £6,267& 8% stat interest of £1,371.91 TOTAL = £7,63.75.



The key Apportionment Factor (see concept of 2 Loans thread above) was 20.613% in this case. (ie ratio of PPI Loan/Total of both loans)

Right, this the simplest case possible--below are increasingly more complex cases which we will develop further - basically the Apportionment Factor (Ratio) will become dynamic and these complex cases can only be anaysed with mathematical spreadsheets--which we will develop

I think it best if we subdivide discussions into the various scenarios with Settled Loans--I detail below my thoughts on this below--but would appreciate comments if anybody can think of any other cases we should consider also

• A - Simple Loan at fixed % which has been completed on schedule
• B - Simple Loan at fixed % which has been completed on schedule -- but with a PPI Refund after a few payments (say) -with ensuing reduced payments (same modified agreement)
• C - Simple Loan at fixed % which has been SETTLED by a payment--no PPI refund given
• D - Simple Loan at fixed % which has been SETTLED by a payment--and a PPI Refund given
• E - Simple Loan at fixed % which has been SETTLED by a payment- but not known so use Rule of 78 Calc-no PPI refund given
• F - Simple Loan at fixed % which has been SETTLED by a payment- but not known -so use Rule of 78 Calc-and aPPI refund given
• G - Variations on above where there are changes in the %, missed payments & arrears agreements

You will soon see in these discussions that the effective Apportion Factor % changes in B & G especially- it is impossible to do without the aid of spreadsheets


Turbo

[Angry Cat]

Re: Understanding PPI Calculations -- Settled Loans

Not forgetting PPI that was applied to running account credit also, of course.

[Turboman]

Right--back to this thread - apologies if I have left it a bit--but will finish through to the complex cases and then move onto Active Loans thread.



This post is just to:

• A - Make sure we are all understanding the terminology when we talk about "PPI Interest"
• B - Develping previous spreadsheet to take account of varying payments---and Re-emphasising the concept of using "Apportionment Factors" --- rather than the PPI Monthly Payment Amounts detailed on the original agreement--(with worked example)

A - Understanding the terminology when we talk about "PPI Interest"

In discussing PPI interest, on MSE, PAG & on here in Legal Beagles--I have experienced discussions which go round in circles because the 2 parties are really talking about different understandings re "Interest".--- Indeed, me & Bill-k also have had mis-conversations in the past on the same subject.

The confusion usually arises because various lenders detail their settlement letters in different terms-and so introduce mis-understandings between posters with different lenders.

In practice, the total Loan in PPI cases is effectively split between the Cash Loan Account and the PPI Single Premium Account. Both of these have a separate monthly payment detailed on the agreement.
In reclaiming for PPI mis-selling, it is only the PPI Payments that are considered--ie the redress should be as if the Cash Loan had been taken out without PPI.

In the case of the PPI Single Premium Loan, the loan is amortized (a schedule of payments calculated) so as to pay back the original PPI Single Premium Loan with interest calculated at the rate detailed on the agreement. Each of the monthly payments is therefore effectively part payment towards the premium and part payment towards the interest on the outstanding balance. In the early years, the effective payment towards this PPI Single Premium Loan will be mainly paying interest, but less so in the later years

The confusion comes when some posters think that they are due back the return of Monthly PPI Payments + Debited Interest + 8% statutory (or whatever %/method we care use as compensatory interest). This effectively claims back the Debited Interest twice - which is incorrect.

On reading the FOS guidelines---I realised that it would be a lot simpler for posters to only talk about returned Monthly PPI Payments---ie exactly like the FOS and not bring the term Debited Interest into play---and with my "Apportionment Principal"--life suddenly became a whole lot simpler.

Monthly PPI Payments of course include the debited interest, but we don't need to bring it into play as a separate item.

This then means that the only areas that are a "bit more complex" are the treatment of PPI refunds & Overall Loan rebates (often worked under Rule of 78).

B-Taking account of varying Monthly Payments



In this post, I will use the same spreadsheet as above, but will introduce varying payments throughout the life of the Settled Loan. The most common occurences are:

• Increased total monthly payments due to changes in interest rates
• Reduced payments due to financial difficulty
• Missed payments due to financial difficulty
• Large catchup payments to pay off arrears.

I am still keeping the scenario of a loan that has run its course with no Loan Rebates or PPI Refunds to consider, and will assume that we just get back 8% statutory interest.

So,we can no longer use the simple model in above post where all the payments were as planned, but we must instead split these varying payments into the Cash Loan & PPI Single Premium part. This is simply done by amending the generated list with the actuals from your Loan Statements. The use of the "Apportionment Factor" will automatically separate the Payments into that bit due to the PPI element.



(just need SS now---back soon---going to get Bill to check this over so far)









IN MIDST OF TYPING DRAFT WHERE I WILL PERIODICALLY ADD A BIT MORE --DON'T BOTHER WITH THIS POST YET TILL AFTER TEA TIME WHEN I WILL REMOVE THIS RED BANNER