Thursday, 22 August 2013


The final bill for the compensation paid out was £450 million, about a third of the expected total, as barely one in three of those entitled replied to the letter they were sent. So the banks certainly did get away with it.

Banks and other card providers who misled their customers into calling sales lines where they were mis-sold expensive and unnecessary insurance are to escape punishment.

The card providers made up to £55 for each mis-sale. But the Financial Conduct Authority regulator has decided they will not be publicly censured for breaching any of the rules which they must follow such as treating customers fairly and providing information which is fair, clear, and not misleading.

Instead they will pay into a redress scheme of up to £1.3 billion to compensate the estimated seven million people who bought or renewed these products from 14 January 2005. Compensation will not be paid until April 2014.

The FCA Chief Executive Martin Wheatley said 

"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 policy holders will be able to claim a full refund of premiums with interest."

How it worked
The firm behind this insurance, CPP, was fined £10.5 million last year for mis-selling insurance and not treating its customers fairly. Chief Executive Paul Stobart told me this week that the size of the fine was a surprise and that the regulator (then the FSA) had wanted to make an example of his firm. CPP says that only around 5% of the sales of the product were made directly by the firm. The rest came through a complex deceit by thirteen credit and debit card providers.

When a credit or debit card expired or was replaced the new card had a sticker put on it inviting the customer to call a number to ‘activate’ it or confirm its safe receipt. When a customer did so they were put straight through to a sales agent for CPP. After going through a charade of ‘activating’ or registering the card the agent would then try to sell the customer insurance against card loss and a service called identity protection.

Card protection was sold for £35 a year. The insurance actually cost CPP just 60p. The £35 was then divided between CPP and the card providers who took up to £21 for each mis-sold policy.

Identity Protection was sold for £84 a year. The cost to CPP including the premium and a helpline was £16. The profit of £68 was shared with the card providers some of whom got as much as £34 per sale.

The insurance product was largely useless as any losses due to card fraud are reimbursed by the card provider. And in cases where that is refused due to carelessness on the part of the customer the insurance was unlikely to pay out either. The ID protection product was also of little value and what value it had was mis-stated or exaggerated.

The FSA found that CPP sold insurance part of which ‘its customers did not need’ and for the rest it ‘failed to explain the very limited circumstances in which customers would need the cover’. CPP also ‘overstated the risks and repercussions of identity theft’.

As a result in November 2012 CPP was fined £10.5 million which it was allowed to pay in six instalments up to December 2014. Some of these payments have now been deferred further. CPP says the fine, redress and administrative costs so far have cost it £54 million. Paul Stobart, the CEO of CPP told me that figure was ‘eye-watering’ and far more than he had anticipated. Advisors alone had cost the firm £14.5m.

Nine months after fining CPP the FCA has decided that the banks and card providers which colluded in mis-selling products to millions of customers by putting misleading stickers on new cards are not to be fined or found guilty of breaching rules about treating customers fairly or providing information which is clear, fair and not misleading. The card providers were able to approve the sales scripts used by CPP (which the FSA condemned in its judgement in November 2012). They were also able to listen in to the sales calls if they chose to do so. 

CPP will write to all seven million customers at their last known address inviting them to vote for the scheme of redress. There will also be adverts in national newspapers and a website and free helpline. If a majority of those voting agree with the scheme the High Court will be asked to approve it. The seven million people will then be invited to claim. There will be no need to prove you were mis-sold. There will be a deadline for claims to be made. No-one knows how many will make it through the whole process. But CPP’s Board estimates that "the rate of responses leading to successful claims will be less than 25 per cent. of the aggregate overall population of potential claimants". CPP says that refers only to the claims on the 350,000 direct sales. If it exceeds 25% the banks can call a default on the loans and CPP’s future could be in doubt.

If you bought or renewed Card Protection or Identity Protection products from CPP at any time from 14 January 2005 watch for a letter from the firm and for adverts in case the letter does not reach you. Call the free phone number 08000 83 43 93 to update your details.

The scheme will cover everyone who bought or renewed one of these products from 14 January 2005 through one of the thirteen business partners. If the initial sale was before that date but it was renewed after that date the compensation will only cover the period from 14 January 2005. If the business partner is not in the scheme then a direct claim to that firm or to CPP can be made.

The redress will be the full amount of premiums paid since 14 January 2005 less any payouts made plus interest at 8% a year added on to the sum due.

The scheme website is but it isn't currently very helpful. The free phone number 08000 83 43 93. If you have not received a letter by 20 September ring the number to find out what is happening. 

If the scheme goes ahead, redress is expected to start from spring 2014.

If you were sold one of these products  before 14 January 2005 and did not renew it after that date then you can complain to CPP or the bank which introduced you to CPP and pursue the claim  to the Financial Ombudsman.

CPP CEO Paul Stobart told me he apologised and “we are sorry for any inconvenience and if customers were misled they should apply through the scheme and get redress.”

The firms involved
The thirteen card providers who colluded in misleading their customers and are part of 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

Other business partners, who accounted for a tiny percentage of sales, are not in the scheme. Complain direct to the firm or CPP and if that fails go to the Financial Ombudsman 

CPP continues to trade as a ‘life assistance” business and now sells access to airport lounges, storage of spare keys, and a service to cancel and replace lost or stolen cards. It is still allowed to renew the mis-sold card protection and ID products if customers want them to continue. It is not allowed to market them tonew customers nor to put any barriers in the way of cancellation for existing customers. The card protection product has been changed slightly to conform with FCA rules. This year about 71% of all CPP’s customers renewed their policies.

The redress scheme website
The free phone number 08000 83 43 93. Use that to update your address or details to make sure you will get the letters.

The FSA decision on CPP 15 November 2012.

Version 1.02 28 August 2013.