Consumers and consumer groups are rightly asking “Is there no end to bank mis-selling?” What has prompted the most recent round in bank criticism? Answer: the long awaited compensation proposals from the Financial Conduct Authority [FCA] on the mis-selling of ‘card and identity protection insurance’. In their announcement, the FCA predicts that the compensation bill for this round of mis-selling will add another £1.3bn to the mis-selling redress pot.
What is card and identity protection insurance and how was it mis-sold?
Card and identity protection insurance was designed to protect consumers from financial loss if their debit or credit cards were lost or stolen. Sounds useful! However, the problem with these products is that while they were meant to cover against financial loss if the policyholder is victim of fraud, this is protection that all cardholders already have! Under the rules laid down in the Payment Services Directive, banks must refund customers immediately if the customer is a victim of fraud, unless the bank has reasonable doubt that the customer had acted negligently or fraudulently – in which case it is unlikely the policy would have paid out either! The FCA found widespread mis-selling of card protection and identity protection policies by CPP and sold by several banks, credit card issuers and directly by CPP. As a result of the mis-selling, the FCA fined CPP £10.5m at the end of 2012 and announced that a compensation scheme would be arranged to repay those who bought the products based on misleading or unclear information. Around 7 million people bought or renewed 23 million policies from CPP.
So what are the next steps?
The proposed arrangements are complicated and policyholders need to make sure they respond to mailings from CPP as there is a legal requirement that a majority of customers have to vote in favour of the compensation scheme before the FCA can ask High Court to approve the scheme. Policyholders should receive letters from CPP soon after 29 August.
The scheme being offered to customers will return the premiums the policyholder has paid since 14 January 2005 (the date the products became regulated), less any sums paid out under the policy, plus interest.
Which banks were involved in this type of mis-selling?
It seems that the mis-selling of this product was epidemic in the banking world as the FCA announcement lists the following banks as taking part in the compensation scheme:
- 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
Customer should check documentation
Customers of these banks should check their documentation to see if they purchased a CPP card and identity protection insurance policy. If they did they should look out for the CPP letter and contact their bank if it does not arrive.