Credit card protection scandal

The widespread payment protection insurance (PPI) scandal may still be in full force with thousands of claims being filed every day, but now fresh outrage has been sparked by the banks after news of rampant credit card protection mis-selling broke last week.

A total of thirteen financial institutions, including a state-owned bank, have earmarked a whopping £1.3 billion to compensate millions of consumers who were the victims of yet another banking disgrace.

Around seven million customers who bought or renewed policies from York-based card insurance specialist CPP Group between 2005 and 2011 can expect to receive compensation after being mis-sold policies that were either not necessary or covered risks that had been greatly exaggerated.

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How it unfolded

Telephone numbers dialled to ‘activate’ replacement cards often took callers through to CPP, which then grasped the opportunity to mis-sell card or identity protection. While some banks made sure their customers knew they had reached CPP, others kept them in the dark. The motives for the scheme are clear: between January 2005 and March 2011, the 4.4 million policies sold generated £354m gross profit. A further £656m came from 18.7 policy renewals.

What you paid

Card protection policies cost £30 a year, despite the fact that they only cost 30p to manage. What’s more, since banks already cover customers for free, only 0.5% of people with such policies made a claim. Identity protection policies cost in the region of £80. In the majority of cases, customers were given misleading information and ended up buying policies they didn’t need or to cover them for risks that had been vastly inflated.

Financial institutions behind the scandal

The policies were sold through 13 well-known banks, credit card companies and retailers including: Barclays, state owned Royal Bank of Scotland, Egg, Capital One, Clydesdale Bank, Home Retail Group Insurance Services, HSBC, MBNA, Morgan Stanley, Nationwide, Santander UK, RBS and Tesco Personal Finance. With Barclaycard leader of the card market, it is likely Barclays will suffer the biggest financial blow.

How much compensation to expect

You are entitled to whatever you’ve paid for the policy since 14 January 2005, when the mis-selling first took place, plus an additional 8% interest on the amount owed. However, if any money was paid out by the policy this will be removed from the total sum. It is expected that each of the seven million customers who purchased policies between January 2005 and March 2011 will receive a payout of £185.

Taking action

If you were affected, you will be receiving a letter at some point, which will explain how the compensation scheme operates and what to do next. This letter will also request you vote on whether you are in favour of the deal. If the majority who do so vote in favour, the scheme will be considered approved and will go ahead.

When to expect redress

The Scheme of Arrangement will be formally approved by the high court once the vote goes through, after which claimants will need to fill out a simple form. At the moment, it is expected money will start to be paid out from spring 2014.

If you bought a policy before 2005

If you want to make a claim on a policy purchased before 2005, you may encounter a few problems. Since what was the Financial Services Authority (FSA) at the time – now the Financial Conduct Authority (FCA) – started regulating general insurance sales from January 2005, the organisation is unable to enforce compensation owed to customers who were sold a policy before then.

While a claim is not impossible, it might be a challenge, especially if you don’t have the paperwork. CPP or your bank may have the details of your policy so it is worth asking. If they refuse to pay up, you can take your case to the Financial Ombudsman Service (FOS).

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Posted by: Nicola Severn Categories: Finance Tags: , , Comments Off on Credit card protection scandal

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