Up to two million customers of leading banks will have the option of accepting compensation after being sold unnecessary insurance for the loss or the theft of their bank cards.
The Financial Conduct Authority (FCA) has agreed the plan for compensation with 11 different banks and credit card providers.
The customers who have been potentially adversely affected will be contacted by post in April or May, to ask if they are in favour of the proposed compensation scheme. In the event that the scheme is approved each customer will receive hundreds of pounds in compensation.
Why the insurance was unnecessary:
The insurance policies, which were provided by a company named Affinion, and which were sold by the credit card providers and banks, were labelled as ìCard Protectionî, ìSentinelî, and ìSafe and Secure Plusî. The problem lies in the fact that protection for the end user is the responsibility of the credit card provider. If the customerís card is lost or stolen, the credit card provider will seek to resolve the issue, and the customer should not be charged an additional insurance cost.
The regulator explained: “The bank or card issuer usually covered customers for anything over the first £50 if transactions took place before the card was reported missing.”
Mis-selling from CPP
The situation with Affinion is very similar to another case in which customers could have claimed compensation for the mis-selling of insurance, in which a company named CPP sold identity protection insurance policies to over seven million customers.
If all the customers affected had made a claim for compensation, the pay-out for CPP could have been in the region of £1.3 billion.
The payments were made in 2014 and with a dead-line in August for claims.
CPP was handed out a fine for £10.5 million during 2012, by the Financial Services Authority (FSA), which was the predecessor to the FCA. The fine underpinned the judgement that CPP had used under-hand tactics in order to confuse customers into thinking that the additional insurance was necessary.
For Affinion however, there has not been a definitive judgement from the FCAís investigation, as to whether or not intentionally under-hand tactics were used.
The director of supervision and authorisations within the FCA made the following comment: ì”We have been encouraged that, working closely with the FCA, a large number of firms have voluntarily come together to create a redress scheme that will provide a fair outcome for customers.î
The Processing for Getting Compensation
For the customers who purchased any of the unnecessary insurance products during January 2005 or August 2013, they can expect a letter in the post from Al Scheme Limited, a company which manages the administration of compensation.
There will be a formal vote in April or May which will decide if it will be required to pay out the compensation or not.
In the event that all vote in favour the of the compensation scheme, the affected customers will be able to claim their compensation by sending a form in.
At this stage, it can only be speculated how many people will actually fill out the claims form, and thus how much compensation will be due.
Based on the fact that the average cost of a policy is £25 per year, with an accrued interest 8% each year (minus any taxes and/or insurance pay-outs), a rough calculation indicates that each customer could be owed a refund of around £300.
The card providers and the banks that were involved in the mis-selling are:
ï The Royal Bank of Scotland
ï The Co-operative Bank
ï Santander UK
ï Tesco Personal Finance
ï Northern Bank Limited trading as Danske Bank
ï HSBC Bank
ï Lloyds Bank
ï Clydesdale Bank
ï Barclays Bank
ï Capital One (Europe)
ï AIB Group (UK) trading as First Trust Bank in Northern Ireland and Allied Irish Bank (GB) in Great Britain
Ms McDermott commented: “If approved, this scheme will provide those who may have concerns about the way their card security product was sold to them with a simple and free way to claim compensation,”
The FCA made the point that the compensation scheme would not benefit anyone who had purchased a card insurance policy as part of their bank account package.