Redress package agreed for consumers mis-sold CPP insurance products

The Financial Conduct Authority (FCA) has reached an agreement with Card Protection Plan Limited (CPP) and 13 high street banks and credit card issuers that will pave the way for redress to be paid to customers who were mis-sold CPP’s Card Protection and Identity Protection policies.

Seven million customers, who between them bought and renewed about 23 million policies, will soon receive a letter from CPP giving more information on the process. The redress bill could be up to £1.3bn with redress per customer depending on the type of policy (or policies) owned and the length of time it was held.  

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 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 £10.5m fine in November 2012. Customers were given misleading and unclear information about the policies so that they bought cover that either was not needed, or to cover risks that had been greatly exaggerated. As well as CPP selling directly to customers, high street banks and credit card issuers introduced millions of customers to CPP.

CPP and the following high street banks and credit card issuers have voluntarily agreed to be part of the Scheme and will provide the money needed to pay redress:

• Bank of Scotland Plc (part of Lloyds Banking Group)
• Barclays Bank Plc
• Canada Square Operations Limited (formerly Egg Banking Plc)
• Capital One (Europe) Plc
• Clydesdale Bank Plc (part of National Australia Group Europe)
• Home Retail Group Insurance Services Limited
• HSBC Bank Plc
• MBNA Limited
• Morgan Stanley Bank International Limited
• Nationwide Building Society
• Santander UK Plc
• The Royal Bank of Scotland Plc
• Tesco Personal Finance Plc

The involvement of the banks and credit card issuers reflects the fact that they introduced customers to CPP’s products and so must share responsibility for putting things right.

The refinancing arrangements recently secured by CPP[1] were critical for the Scheme to be able to go ahead.

However, while an agreement has been reached with all the parties, the Scheme must first be voted on by customers (who are the Scheme’s creditors) and approved by the High Court before redress can be paid. Of the customers who vote, a majority will need to vote in favour of the Scheme for this to happen.

This means redress itself is not expected to be paid out until Spring 2014. The time between now and then will be spent seeking Court approval of the Scheme and ensuring CPP customers’ voices are heard.

Martin Wheatley, chief executive of the FCA, commented:

“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. 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.

“We believe this will be a good outcome for customers who may have been mis-sold the card and identity protection policies. Subject to CPP’s customers approving the scheme, these policy holders will be able to claim a full refund of premiums with interest.  

“Doing it this way means customers will get redress via a simple and standardised process, so we are encouraging customers to approve the Scheme when they receive their voting letters in the Autumn.

“To try and ensure that as many people as possible hear about the arrangements and that nobody misses out on redress, CPP, the banks and the credit card issuers have agreed to pay for a series of adverts in the national newspapers.”

Key information for CPP customers:

•  Any affected customer will be contacted by CPP from 29 August 2013 onwards. The letters will explain in more detail how the Scheme works and what people can do next. The subsequent letter in the Autumn will also include an invitation to vote on whether the customer is in favour of the Scheme.
• If the Scheme is approved by voters, even those who voted against it will still be able to submit a claim for compensation.
• If the Scheme is approved, all customers need to do is complete a simple claim form. They do not need to use a claims management company to help them claim redress.
• The Scheme is open to:

all 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 who are participating in the Scheme; and

customers who bought or renewed Identity Protection from CPP since 14 January 2005 by telephone.

• If customers are due compensation they will be entitled to the amount they have paid for their policy since 14 January 2005, less any money paid out by the policy, plus 8% interest on the amount owed.  
• Should a customer make a claim their policy will be cancelled – even if their claim is rejected.
• Some customers will value the product and find some of the features useful, so they should think carefully about whether they want to keep the product before they make a claim.   
• Any complaints referred to the Financial Ombudsman Service will be considered in line with the terms of the Scheme. More information can be found at www.cppredressscheme.co.uk[2] or by calling 08000 83 43 93. The website and telephone helpline will be available from 28 August 2013.

The FCA has published further information for consumers[3] on its website.

Background on CPP and the FCA

In November 2012 the FCA’s predecessor, the Financial Services Authority (FSA), issued its joint largest retail fine of £10.5 million to CPP for mis-selling.

The key failings identified were:

• 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.

As a result of the FCA’s action CPP stopped selling regulated insurance products – something that continues to this day.

Notes to editors

1. A Scheme of Arrangement is an arrangement between a company and its creditors and can help with re-organisation of a company’s finances. The Scheme has to be approved by a Court, and requires the consent of a majority of creditors (by number) and 75% by value of creditors that vote. The estimated maximum redress bill of £1.3bn is based on total sales and renewals covered by the Scheme. However, the actual amount of redress paid out will depend on the number of valid claims received.      
2. More information about the FSA’s fine of CPP[4] can be found online.
3. CPP’s Card Protection product was also known as Card Guard (offered by HSBC); Card Safe (offered by M&S Money); Barclaycard Card Protection; Barclays Cardholder Protection; NatWest Card Protection; Egg Emergency Cover; Card Protection Plus and Commercial Card Protection (which were sold by CPP and a number of its business partners).
4. The FCA has used its powers to bind the Financial Ombudsman Service (FOS) to the Scheme.  This means that consumers who are eligible for the Scheme can complain to the FOS, but the FOS can only assess their claims, and award compensation by using the rules of the Scheme.  Therefore consumers who complain to the FOS should be put in the same position as if they had made a claim though the Scheme.   
5. We have added variations of requirements to the permissions of CPPL[5] and the 13 business partners[6] listed in the press statement [added to press release 28 October 2013].
6. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
7. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
8. You can find more information about the FCA[7], as well as how it is different to the PRA[8], on our website.