Banks to pay out £1.3bn to 7m customers
Thirteen banks and credit card firms have agreed to provide up to £1.3 billion compensation to seven million people for mis-selling protection policies, announced the Financial Conduct Authority (FCA) on Thursday.
FCA said around 4.4 million policies were sold by high street banks and Card Protection Plan Limited (CPP) during 2005 and 2011 that generated £354 million in gross profit. Furthermore, another 18 million policies were renewed during the same period, generating an income of £656 million.
Explaining the mis-selling scandal Martin Wheatley, FCA’s chief executive said: “These protection policies were never needed, the 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.”
He added: “The redress scheme will provide a fair outcome for customers, and that 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.”
According to the agreement customers would be entitled to the full amount they paid for their policy since 14 January 2005, plus 8% interest on any sum owed.
Customers should expect to receive letters from CPP from 29 August 2013, explaining how to claim compensation. However, the scheme must be first voted by the victims and approved by the High Court and no payments are expected to go out until spring 2014.
The estimated maximum redress bill of £1.3 billion 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.
Thirteen banks and credit card firms have agreed to the policy. The list includes Barclays, Royal Bank of Scotland, Canada Square Operations (formerly Egg), Capital One, Clydesdale, Home Retail Group Insurance Services, HSBC, MBNA, Morgan Stanley, Nationwide Building Society, Santander UK, Bank of Scotland and Tesco Personal Finance.
Commenting on the FCA’s redress scheme a CPP spokesperson said: “Our priority is to achieve the best outcome for customers affected by these historic issues and ensure customers receive a fair and high quality end-to-end service.”