00:42
Tieng Anh Vui
UK banks have agreed to set up a fund to compensate victims of another mis-selling scandal, which could cost them up to £1.3bn.
They will reimburse customers mis-sold card protection and identity theft insurance products by CPP Group.
The Financial Conduct Authority said that customers had been "given misleading and unclear information about the policies".
CPP Group and 13 High Street lenders will pay for the compensation.
The new banking regulator, the Financial Conduct Authority, said that some seven million customers could now expect to receive a letter from CPP explaining how to claim compensation.
On the hook
The banks and credit card companies that have agreed to provide compensation:
- Bank of Scotland
- Barclays
- Canada Square (formerly Egg)
- Capital One
- Clydesdale Bank
- Home Retail Group
- HSBC
- MBNA
- Morgan Stanley
- Nationwide
- Santander
- Royal Bank of Scotland
- Tesco
The banks, whom regulators found culpable of introducing customers to CPP's products, will pay money into the fund as the claims are received.
Unnecessary and exaggerated
During the period of mis-selling between January 2005 and March 2011, CPP sold 4.4 million policies and generated £354m in gross profit. A further 18.7 million policies were renewed during the same period, generating an income of £656m.
Many customers were put in contact with CPP when they rang a number on their new bank card in order to activate it. Many thought they were talking to their bank, but they were in fact being put in touch with a salesperson from CPP.
CPP then used the opportunity of the call to offer card protection insurance. If the customer bought the product, the bank got a commission.
The amount of compensation that an individual customer can expect will depend on what products they bought and for how many years, but could run into hundreds of pounds.
The York-based CPP Group sold a card protection product costing about £30 a year, that was designed to cover losses if a card was lost or stolen.
It said customers would benefit from up to £100,000 of insurance cover, but customers were already covered by their banks. Generally, cardholders are not liable for unauthorised card payments on lost or stolen credit and debit cards.
A second product, sold for about £80 a year, was designed to cover costs if the customer's identity was stolen.
The FCA's predecessor, the Financial Services Authority, found that CPP overstated the risks and consequences of ID theft when this insurance was being sold.
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