The mis-selling of Payment Protection Insurance (PPI) caused outrage in the UK last year, when a record 104,597 PPI claims were dealt with by the Financial Ombudsman.

As the leading banks set aside massive reserves of cash to settle existing PPI claims, many people are yet to claim compensation for PPI that was mis-sold with applications for credit cards, online loans and other types of finance.

According to the Financial Ombudsman, around one in three PPI claims is settled in favour of the claimant, who receives an average compensation award of £2,750.

Identifying why the issue of mis-sold PPI became such an important topic in the UK requires an understanding of trends that had been shaped for numerous years beforehand.

Unhappy with the rates of interest charged by banks for basic forms of credit, such as overdrafts and online loans, customers were deeply and understandably aggrieved when it became apparent that they had been mis-sold PPI.

The question that ought to be raised at this point is how can a borrower tell when they have been mis-sold PPI? Furthermore, what exactly does mis-selling in this context mean and why should customers be given their money back?

PPI can be mis-sold in various ways. If PPI was included with a loan or credit card as an optional extra, the lender may have mis-sold the insurance if they had not made clear to the applicant that the PPI was optional.

Lenders are further required to discuss aspects of PPI that are likely to affect customers; for example, the applicant ought to be made aware of payment terms, particularly in respect to the repayment schedule and interest rate.

Some PPI policies include exclusion clauses that may be deemed unfair or prejudicial to the interests of the applicant; for instance, if a term states that credit repayments are not covered for problems caused by pre-existing medical conditions.

Unemployment cover for retired or unemployed applicants might also substantiate a PPI claim, whilst the self-employed should have been made aware of other relevant terms and conditions.

Generally speaking, the lender is required to discuss or make clear aspects of the PPI policy that are important to know. Borrowers in receipt of online loans, however, tend to encounter greater difficulties when making a PPI claim.

Prior to July 2007, most lenders employed the cynical, devious practice of checking PPI terms that had to be unchecked if the customer wanted to opt out.

It is universally accepted that few people read the entire terms and conditions of a contract, especially when applying for or accepting a form of credit, so to trick or mislead applicants in this manner gave rise to a number of PPI claims.

After July 2007, lenders stopped this practice, making it more difficult for borrowers to accuse them of mis-selling PPI. After all, online applicants are expected to read the terms of PPI agreements before proceeding with an application.

It is obviously important that those in receipt of online loans prior to July 2007 check whether they might have been unfairly mis-sold PPI and chances are that they were.

In fact, all borrowers should check their policies with the aim of establishing whether they have been mis-sold PPI by lenders. Forcing inflated premiums and useless indemnities on customers is an unacceptable practice, but borrowers cannot wait for PPI to be refunded. They must work through each step of the claims process.