Britain's banks face a new, £200m bill for mis-selling after the Financial Services Authority fined the country's biggest provider of card and identity theft insurance a record £10.5m.
CPP widely mis-sold its two main UK products to 4.4 million people for six years up to March 2011. It has agreed to give some 300,000 people to whom it sold directly around £14.5m in compensation. The bill for the other 4.1 million customers who were introduced to CPP by card issuers including Royal Bank of Scotland, Santander, HSBC and Barclays will be met by these banks, and may reach £200m.
The banks and CPP are still negotiating with the FSA over how they will settle the majority of the mis-selling claims and how much it will cost. Last month Santander said it had included a provision for card protection mis-selling among total "redress" provisions of £232m in its third quarter.
Most of CPP's sales were based on the stickers put on new credit or debit cards telling customers to ring a number to "activate" the card or confirm delivery. These calls went through to CPP call centres where staff then tried to sell them card protection and identity protection. The FSA said call centre staff were "over-persistent" and used scripts which not only misled customers but also outrightly lied. In one case the script said identity theft had "risen 40 per cent in the last year" when industry data showed it rose 1 per cent.
Tracey McDermott, head of enforcement and financial crime at the FSA, said: "This is a serious case, one that has warranted our joint largest retail conduct fine and generated a sizeable bill for consumer redress."
CPP customers paid about £35 a year for card protection and £84 for identity protection. As well as the 4.4 million new policies sold over the six years, another 18.7 million policies were renewed.
Ms McDermott said: "While CPP's products were relatively inexpensive, they were sold widely, and CPP encouraged its sales agents to be overly persistent. This exposed a very large number of customers to the unacceptable risk of buying products they did not want or need. Further, we had already warned the firm that it might be misleading customers about a feature of card protection from which customers were unlikely to benefit, but insufficient action was taken to rectify this."
Paul Stobart, the new chief executive of CPP, said: "We are deeply sorry for the errors and wrongdoings of the past and are paying a heavy penalty through what is a large fine."