Jeff Salway: Echoes of PPI in credit card protection farce

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IT WAS a classic of the mis-selling genre, ripping off loyal customers by flogging them products they didn’t need. So why haven’t the banks responsible for facilitating that mis-selling been punished?

The City regulator announced last week that 13 banks and building societies will pay up to £1.3 billion in redress to seven million customers who bought credit card and identity theft protection policies from CPP, a card insurance specialist.

Some 4.4 million policies were taken out and almost 19 million renewed between 2005 and 2011 at a cost of around £35 and £84 a year respectively. The problem was that card issuers already provide such protection for free, which helps explain why just 0.5 per cent of people with CPP policies have claimed on them.

So where do the 13 banks fit in? Well, they – among them Bank of Scotland, Royal Bank of Scotland and Clydesdale – colluded with CPP by transferring customers to the firm when they called to activate their credit card. The customer would often have assumed they were still dealing directly with their bank. Instead they were speaking to a CPP salesperson, who would invariably subject them to the insurance hard-sell.

Just 300,000 or so of the 4.4 million policies were sold directly through CPP, without a bank referral. CPP was fined £10.5 million last year and has paid out millions more in compensation, although it did make profits of more than £350m from selling the useless policies. The crackdown almost sent the firm to the wall, before banks including Barclays and RBS gave them a credit lifeline earlier this summer.

The belated punishment was welcome, but for one problem – the banks and building societies involved were let off the hook. That has been rectified to some extent now with the compensation package.

However, the fact remains that they still aren’t being taken to task for their role in the widespread sale of a product to customers who they knew would never need to claim on it.

At least PPI was a decent product that only became toxic in the hands of branch staff. The products sold by CPP had virtually no merit. However, the very banks who undermined its products by becoming effective at protecting customers from fraud were largely responsible for their mis-selling.

In that sense this is as bad as the PPI scandal. Yet the banks involved have “agreed” with the Financial Conduct Authority to pay out an average of just £1m each to help compensate the victims.

Not much of a deterrent is it, nor does it provide the incentive needed for banks to change their ways and stop treating customers like mugs.