Following the latest mis-selling scandal to hit the UK financial services sector, the Financial Conduct Authority (FCA) has announced that it has reached an agreement with Card Protection Plan Limited (CPP) and 13 high street banks and credit card issuers over compensation to customers who were mis-sold CPP’s Card Protection and Identity Protection policies.

The insurance products, ‘Card Protection’, which cost approximately £30 per year and ‘Identity Protection’, which cost approximately £80 per year, were widely mis-sold by CPP, resulting in a £10.5 million fine in November 2012 from the FCA’s predecessor, the Financial Services Authority (FSA).

The FSA issued the fine after identifying the following key failings:

• CPP sold its Card Protection product by emphasising that customers would benefit from up to £100,000 worth of insurance cover – when this was not needed because customers were already covered by their banks; and
• CPP overstated the risks and consequences of identity theft during sales of its Identity Protection product.

The FCA’s primary concern throughout its work on CPP has been to ensure customers get a fair deal. To that end the banks and credit card issuers have, subject to the approval of the High Court, agreed to establish a ‘Scheme of Arrangement’. The Scheme provides a simple process for customers who were mis-sold to make a claim for redress. As claims are made the firms will pay money into the Scheme to meet their outgoing redress payments.

The banks and credit card issuers are required to contribute to the Scheme because they introduced customers to CPP’s products and so must share responsibility for putting things right, says the FCA.

It believes that there are around seven million customers affected, who between them bought and renewed about 23 million policies. The redress bill could be as high as to £1.3 billion, with redress per customer depending on the type of policy (or policies) owned and the length of time it was held.

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