Britain’s high street banks have been slapped with a fresh compensation bill of £1.3bn after they were found guilty of flogging useless and unnecessary credit card fraud and identity theft insurance.
Some seven million people were left out of pocket after being encouraged to splash out on the policies and are now in line for payouts averaging almost £200.
The City Watchdog said bank customers were given “misleading and unclear information about the policies so that they bought cover that was not needed, or to cover risks that had been greatly exaggerated”.
The Financial Conduct Authority fined CPP - the firm behind the dodgy policies - £10.5m last year for its part in the scandal.
But the regulator said that banks must “share responsibility” for the widespread misselling.
In a statement the FCA said: “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.”
Campaigners said the latest scandal involving our banks came as no surprise. Simon Chouffot of the Robin Hood Tax campaign, said: “The never-ending stream of dodgy dealings by banks puts your average scam artist to shame - it shows they will try any trick to fleece the public.
”It's not enough that banks pay fines on the occasions they are caught while their pursuit of a fast-buck continues regardless. We need to rewrite the role the sector plays in Britain and ensure it works for rather than against the interests of society.“
Dan Plant, from MoneySavingExpert.com, said: “It’s important that redress is finally being sorted after another systemic mis-selling scandal from the banks for what were largely useless policies. We’re crossing all our fingers and toes that this doesn’t turn into another PPI debacle, with legitimate claims being endlessly ignored.”
Some 13 banks, building societies and credit card companies have been named as being involved in the misselling scandal, including Barclays, HSBC, Nationwide, Santander, Royal Bank of Scotland, Bank of Scotland Tesco Personal Finance and credit card provider MBNA.
Other firms named were Nottingham-based credit card company Capital One, Clydesdale Bank, the Home Retail Group, Morgan Stanley and Egg Bank, now known as Canada Square Operations.
Customers of these companies were hit when they called to activate new cards. Without being told they were typically put through to sales staff from CPP so the insurer could flog their policies, persuading unsuspecting customers that they needed identity theft insurance – at around £80 a year – or credit card fraud protection – at £30 a year.
But neither policies were really necessary and attracted few claims and the FCA said they were sold to cover risks that had been greatly exaggerated.
It was a profitable business. Between January 2005 and March 2011, the company sold 4.4m policies to generate some £354m in gross profit. A further 18.7m policies were renewed during the same time period, generating further income of £656m.
Now the 13 lenders and CPP have agreed to pay money into a compensation pot to repay ripped-off customers. They have also agreed to pay to advertise the compensation scheme in national newspapers.
Customers hit by the misspelling have been told they need do nothing at the moment. They will receive letters from CPP starting from next week explaining how to make a claim.
Martin Wheatley, chief executive of the FCA, said: “We believe this will be a good outcome for customers who may have been missold 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.”
But people missold the policies still have a lengthy wait for their cash - payments are not expected to be made until spring 2014, after the compensation scheme has been approved by the High Court.