UPDATE 29 JANUARY 2015
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.
GETTING 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 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.
GETTING 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.
Redress
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 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 www.cppredressscheme.co.uk 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
• 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 http://www.financial-ombudsman.org.uk/consumer/complaints.htm
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.
Information
The redress scheme
website www.cppredressscheme.co.uk
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 FCA press
notice 21 August 2013 http://www.fca.org.uk/news/consumer-redress-agreed-for-mis-sold-cpp-insurance
The FCA consumer
information 21 August 2013 http://www.fca.org.uk/news/compensation-for-card-and-identity-protection-policyholders
CPP half yearly figures 22 August 2013 http://www.cppgroupplc.com/pdf/CPPGroup-plc-2013-Half-Year-Report.pdf
The FSA decision
on CPP 15 November 2012.
Version 1.02 28 August 2013.
