The Financial Conduct Authority (FCA) has reached an agreement with insurance provider Card Protection Plan (CPP) and 13 high street banks and credit card issuers which will result in a £1.3bn redress scheme for people mis-sold CPP's Card Protection and Identity Protection policies.
The regulator said 7m people, who between them bought and renewed about 23m policies, will soon receive a letter from CPP giving more information on the process. The redress bill could be up to £1.3bn with redress per customer depending on the type of policy (or policies) owned and the length of time it was held, it confirmed.
The FCA’s primary concern throughout its work on CPP has been to ensure customers get a fair deal.
It said banks and credit card issuers have - subject to High Court approval - established a 'Scheme of Arrangement' to facilitate compensation. As claims are made the firms will pay money into the scheme to meet their outgoing redress payments.
The insurance products, ‘Card Protection’, which cost approximately £30 per year and ‘Identity Protection’, which cost approximately £80 per year were widely mis-sold by CPP, resulting in a £10.5m fine in November 2012.
Customers were given misleading and unclear information about the policies so that they bought cover that either was not needed, or to cover risks that had been greatly exaggerated. As well as CPP selling directly to customers, high street banks and credit card issuers introduced millions of customers to CPP.
CPP and the following high street banks and credit card issuers have voluntarily agreed to be part of the scheme and will provide the money needed to pay redress:
• Bank of Scotland (part of Lloyds Banking Group)
• Barclays Bank
• Canada Square Operations (formerly Egg Banking)
• Capital One (Europe)
• Clydesdale Bank (part of National Australia Group Europe)
• Home Retail Group Insurance Services
• HSBC Bank
• Morgan Stanley Bank International
• Nationwide Building Society
• Santander UK
• The Royal Bank of Scotland
• Tesco Personal Finance
Refinancing issues and High Court approval mean the scheme will not start paying out until 2014.
FCA chief executive Martin Wheatley said: "We have been encouraged that, working closely with the FCA and despite their different business needs, a large number of firms have voluntarily come together to create a redress scheme that will provide a fair outcome for customers. This kind of collaborative and responsible approach is a good example of how firms are taking more responsibility and helping – step by step - to rebuild trust.
"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.
"Doing it this way means customers will get redress via a simple and standardised process, so we are encouraging customers to approve the Scheme when they receive their voting letters in the Autumn.
"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.”