Out-Law / Your Daily Need-To-Know

Banks discuss consumer compensation plans with FSA after regulator fines firm for mis-selling insurance products

16 Nov 2012, 2:09 pm

Some major banks are in discussions with the City regulator about how to compensate consumers that were mis-sold financial products that provided insurance against identity theft and the unauthorised use of their payment cards.

Earlier this week the Financial Services Authority (FSA) fined (24-page / 307KB PDF) Card Protection Plan Limited (CPP) £10.5 million for mis-selling its 'Card Protection' and 'Identity Protection' between January 2005 and March 2011.

The FSA said that CPP had "failed to treat its customers fairly and did not provide clear information to its customers" about the two products. In a statement the FSA said that it was in talks with CPP and some of the company's "larger business partners" about the issue of "customer redress" following the mis-selling.

CPP "sold its Card Protection product by emphasising that customers would benefit from up to £100,000 worth of insurance cover - when this was not needed because customers were already covered by their banks" and it also "overstated the risks and consequences of identity theft during sales of its Identity Protection product," the regulator said.

CPP sales staff had focused too heavily on sales and the generation of revenues as well as on attaining commercial objectives to the detriment of consumer fairness, it added.

The FSA said the products had been widely sold, with the products often "packaged" together with "bank accounts provided by some of [CPP's] business partners". Most of the CPP sales had been generated after consumers had been "introduced" to the company's offerings by its business partners, including banks, it said.

The FSA said that CPP has sold 4.4 million policies at a rate of approximate £35 for Card Protection and £84 for Identity Protection, generating £354.5m gross profit in the process. In addition the company managed to renew 18.7m policies, generating income of £656.6m during the period spanning more than six years. CPP said it expects that it will pay a total cost of £33.4m stemming from the FSA's investigation after it has paid the fine, provided around £14.5 million in compensation to consumers and accounted for the investigation costs.

The Guardian newspaper reported that some high street banks introduce customers to CPP during the "card activation process". The paper reported an industry source as saying that claims management companies could be "all over CPP claims" in the future.