The credit protection company CPP saw about £220m wiped off the value of its shares yesterday after it was forced to issue a profits warning following an investigation by the Financial Services Authority which revealed "failings in sales calls".
The move led to a share slump from 280p to 150p amid fears about future earnings and the possibility of compensation demands. The firm has stopped selling its identity theft product amid regulator concerns that the insurance included may have been mis-sold.
Neither the FSA or CCP would discuss whether the move would lead to compensation for customers but a statement from CCP said: "The group may need to conduct a review in order to identify whether any deficiency has caused customer detriment requiring redress."
Shaun Parker, the chief financial officer with the York-based FTSE 250 company, said: "The insurance included with our identity protection product covers incidentals such as legal fees or taking time off work, but the FSA is worried that some of our customers might have thought the insurance covers fraud itself.
"We don't believe we've deceived people and our terms and conditions and sales scripts are clear, so we are contesting the FSA's claims."
The City watchdog also expressed concerns that the company's salesforce has been exaggerating the risk of identity theft to sell the product.
"We're contesting that too," Mr Parker said. "We're not scaremongering or being alarmist. Identity theft is a real issue."
But the Which? chief executive, Peter Vicary-Smith, said that few people could benefit from identity theft insurance. "ID theft insurance is a product that most people will never use yet hundreds of thousands of policies have been sold, which raises serious questions about the sales practices being employed," Mr Vicary-Smith said.
He pointed out that under the Banking Conduct of Business Rules and the Lending Code, banks must reimburse victims of fraud unless they can prove that the consumer has acted fraudulently or been negligent.
"We wrote to the FSA last year asking it to investigate ID theft insurance sales after several of our members contacted us with concerns about how it was sold to them, so it's good to see action being taken," Mr Vicary-Smith said.
The FSA's actions arose out of one of its regular visits to CPP on 18 March, Mr Parker said. "As a matter of routine we provide examples of sales calls and the FSA wrote last week, outlined its concerns and gave us a period of time to reply. We are now considering our response."
However, the firm has now withdrawn its identity protection product – which is sold to around a million people – and is planning to relaunch it without insurance in about six weeks' time.
Because income from the new product will be deferred rather than upfront, the company's revenues for this year will be hit, leading to the profits warning yesterday and a 46 per cent slump in the value of its shares. The firm only came to the market last year.
"The business is quite resilient," Mr Parker said. "We've got an extremely strong balance sheet and no net debt right now. Our other products such as card protection, mobile phone insurance and home emergency cover have a strong future."
Other identity theft insurance providers include PrivacyGuard, Experian and Sentinel.
Crackdown sought on plastic card charges
Which? will today submit a super-complaint to the Office of Fair Trading (OFT) asking it to investigate excessive credit and debit card surcharges. The consumer body contends that the charges are unjustifiable and becoming increasingly widespread.
"Consumers are really fed up with paying excessive card charges," says the Which? chief executive, Peter Vicary-Smith. "So far, more than 40,000 people have pledged their support for our campaign to bring these to an end.
"Low-cost airlines are some of the worst offenders, but excessive card surcharges are becoming ever more widespread, with everyone from cinemas and cabs to hotels and even some local authorities getting in on the act."
While the cost to companies for taking payment by card is around 20p to process a debit card payment, and no more than 2 per cent of the transaction value for a credit card, Which? researchers found dozens of examples of companies charging far higher fees.
These include a £25 debit card charge to pay a £5,000 deposit to rent a flat through Foxtons, one of London's biggest letting agents. It also found that a family of four booking a return flight with Ryanair would be charged £40.
The OFT has 90 days to respond to the super-complaint.Reuse content