£1.3bn to be paid out over mis-sold card products
The UK's major high street banks and credit card providers have agreed a compensation deal worth £1.3 billion, to be paid to the seven million consumers who were mis-sold card protection and identity protection policies.
The Financial Conduct Authority (FCA) has reached an agreement with Card Protection Plan Limited (CPP) and 13 high street banks and credit card issuers, to compensate customers who collectively bought and renewed around 23 million policies.
Card protection products typically cost around £30 a year, while identity protection products were more expensive, at around £80 a year. Both were widely mis-sold by CPP, resulting in a £10.5m fine in November 2012.
The FCA said at the time that customers were given misleading and unclear information about the policies so that they bought cover that was either not needed or to cover risks that had been hugely exaggerated.
The regulator has ordered that the banks and credit card companies set up a simple claims process – called a ‘Scheme of Arrangement' – that will ensure victims of mis-selling are dealt with speedily.
But how much consumers will receive depends on the type of policy they took out and the length of time it was held, the FCA said.
As well as CPP selling directly to customers, high street banks and credit card issuers acted as introducers for CPP millions of customers to CPP.
The banks and credit card issuers who have agreed to the scheme are:
- Bank of Scotland Plc (part of Lloyds Banking Group)
- Barclays Bank Plc
- Canada Square Operations Limited (formerly Egg Banking Plc)
- Capital One (Europe) Plc
- Clydesdale Bank Plc (part of National Australia Group Europe)
- Home Retail Group Insurance Services Limited
- HSBC Bank Plc
- MBNA Limited
- Morgan Stanley Bank International Limited
- Nationwide Building Society
- Santander UK Plc
- The Royal Bank of Scotland Plc
- Tesco Personal Finance Plc
Before any compensation can be paid, the redress scheme must first be voted on by customers and approved by the High Court. With this in mind, compensation is not expected to be paid until Spring 2014 at the earliest.
The scheme is open to anyone who bought or renewed the card protection policies from CPP, a bank, or a card issuer who is participating in the scheme, from 14 January 2005 (when the FCA began regulating the sale of general insurance products). It is also open to people who bought or renewed Identity Protection from CPP since 14 January 2005 by telephone.
Martin Wheatley, chief executive of the FCA, said: "We have been encouraged that a large number of firms have voluntarily come together to create a redress scheme that will provide a fair outcome for customers.
"We believe this will be a good outcome for customers who may have been mis-sold the card and identity protection policies. Subject to CPP's customers approving the scheme, these policyholders will be able to claim a full refund of premiums with interest.
"To try and ensure that as many people as possible hear about the arrangements and that nobody misses out on redress, CPP, the banks and the credit card issuers have agreed to pay for a series of adverts in the national newspapers."
Affected customers will be sent a letter by CPP from 29 August 2013 onwards, explaining in more detail how the scheme works and what people can do next. In the Autumn, they will be sent voting forms to vote on the scheme itself.
Between April and June this year, the Financial Ombudsman Service said it received 247 new complaints about card protection insurance. It is finding in favour of the consumer in 76% of cases.
A spokesman said: "While card protection insurance can be useful for some people, in many of the cases we see the consumer neithger wanted nor required the cover.
"There are a number of provisions in place that provide you with some protection if your identity is stolen - so don't feel pressured into taking out an insurance policy on the spur of the moment."
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.