A total of 13 high street banks – including the Royal Bank of Scotland and Bank of Scotland – alongside credit card companies have agreed the compensation package together with card insurer CPP Group, the Financial Conduct Authority (FCA) announced.
The payout is the latest blow to the industry, which has already handed out billions of pounds in compensation for mis-sold payment protection insurance (PPI) over the past two years.
Consumer organisations yesterday welcomed the scheme, but warned that customers needed to be compensated as quickly as possible.
The insurance products, Card Protection, which cost approximately £30 a year, and Identity Protection, which costs approximately £80 per year, were widely mis-sold by CPP, the FCA said – resulting in a £10.5 million fine in November last year.
The latest announcement will now see customers compensated for the unnecessary products they have bought.
“It’s important that redress is finally being sorted after another systemic mis-selling scandal from the banks for what were largely useless policies,” said Dan Plant, spokesman for MoneySavingExpert.com.
“A note of caution is needed as we cannot afford for this being delayed any further.
“Existing complaints have been put on hold, and new ones not allowed while this scheme is sorted.
“We’re crossing all our fingers and toes that this doesn’t turn into another PPI debacle, with legitimate claims being endlessly ignored.”
The PPI scandal involved 23 million policies and saw customers given misleading and unclear information about the insurance.
In the latest mis-selling debacle, some of the financial organisations involved placed a CPP sticker on new credit or debit cards sent to their customers, telling them to ring the number – which belonged to CPP – to activate their card.
When the customer called the number, CPP attempted to sell them ID theft insurance or card protection plans.
Which? executive director Richard Lloyd said: “ID theft insurance and card protection policies are poor value for money and many consumers were mis-led about the benefits, so it’s good to see the FCA taking action against CPP.
“These policies were widely mis-sold so the FCA should name other firms they are investigating, and make it as easy as possible for people to get their money back.”
Customers who bought or renewed the card protection product since 14 January 2005 – when the FCA began regulating the sale of general insurance products – from CPP, a bank or a card issuer, or bought the products over the phone since that date, are all entitled to the compensation.
“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,” said Martin Wheatley, chief executive of the FCA, which was formed earlier this year following the abolition of the Financial Services Authority.
“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,” he added. “We believe this will be a good outcome for customers who may have been mis-sold the card and identity protection policies.”
The compensation package is not expected to be paid until spring next year, once it has been voted on by customers and approved by the High Court.