Jeff Salway: Banks do deserve some blame over the CPP scandal

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PAYMENT protection insurance (PPI) may be at the centre of the biggest mis-selling scandal of all time, but at least it had ­something going for it.

On a standalone basis PPI – designed to pay out in the event of the policyholder being unable to work due to sickness or accident – isn’t a bad product. Put in the hands of bank staff with sales targets to hit, however, it became toxic.

It’s the same for endowments and what’s set to be the next big mis-selling crisis, interest-only mortgages – essentially decent products too often mis-sold.

In the case of identity theft and credit card insurance company CPP we have products that had to be mis-sold as they had so ­little intrinsic value.

The insurance firm specialised in offering cover in the event of a card being stolen or going missing – and identity protection. The policies cost £35 and £84 a year respectively.

If you’ve taken out a new credit card in recent years you may well have received a suspiciously prescient call from CPP offering you fraud cover.

The City regulator typically dragged its feet in acting against CPP before finally whacking it with a wince-inducing £10.5 million fine this week. The total bill, with redress and other costs added on, could top £34m. However CPP did make gross profits of more than £350m from selling the policies to consumers who did not need them.

The fundamental problem is that the protection policies sold by CPP were unnecessary; not only are you not liable for unauthorised card payments, but card issuers provide protection for free.

For all their failings, banks have got their act together when it comes to identifying fraud and refunding customers who suffer losses on their card. Complaints of banks not refunding customers are creeping up, but on the whole they are very effective in protecting customers from card fraud.

It is no wonder that just 0.5 per cent of people with CPP policies have actually claimed on them (according to its own figures). Yet it has more than 4.4 million policyholders in the UK.

That’s testimony to aggressive mis-selling dating back to 2005 which saw CPP – which is still in business – reward sales agents for successfully dissuading customers from cancelling policies.

Yet the Financial Services Authority (FSA) should be taking a very close look at the role of the banks in this. They may have improved their card fraud practices, but around half of CPP’s card and identity protection product sales were made through partners that include some of our biggest high street banks. Some continued to sell the identity protection product even after CPP suspended direct sales earlier this year, often as part of their packaged current accounts.

Banks also acted as the introducer – passing on details of customers that had taken credit cards, hence the apparently prescient cold calling. CPP paid them a commission for each sale and a further commission when a customer renewed their policy.

All above board, yet the omission of action against the banks in relation to the mis-selling is a curious one. There are discussions going on behind the scenes regarding their contribution to the redress pot, adding to their mountainous compensation bill, but little has been said about their wider culpability.

For all its tough talk, the regulator is again letting banks off the hook and in doing so, failing in its duty to protect consumers.

Landlords have been given a very timely reminder of the price they could pay for failure to comply with the Scottish government’s tenancy deposit scheme (TDS). The TDS is now mandatory for landlords in Scotland, who were given until last Tuesday to pay any deposits received from tenants on or after 7 March 2011 and before 2 October 2012 into one of three providers.

Those not doing so face fines of up to three times the deposit amount – and that’s exactly what happened this week down south, where a deposit scheme has been in place for some time already. A landlord who failed to produce the required deposit scheme information to a ­tenant has received the maximum ­penalty even though he had ­supplied most of the materials and his omission was described as “minor”.

The case had initially been dismissed, but the Court of ­Appeal overturned it, giving the tenant the full penalty of three times the deposit.

It wasn’t a significant breach of the rules and it concerned information already in the ­public domain, yet the ruling ultimately cost the landlord several ­thousands of pounds.

It’s early days for the Scottish TDS, but landlords unsure as to how far they really need to go in meeting the new demands would do well to heed the ­expensive lessons being learned south of the Border.