Get set for PPI, round two: 13 financial institutions including Barclays, HSBC and state-owned Royal Bank of Scotland have set aside £1.3bn to compensate consumers who were sold an insurance product ‘protecting’ against credit card fraud and identity theft.
The product was dreamed up by CPP Group, a York-based ‘life assistance’ company. According to industry regulator the Financial Conduct Authority, customers came into contact with the company when they rang a number to ‘activate’ their bank cards. Instead of getting through to their bank, they got through to a sales person from CPP.
Two products have been called into question: the first, costing about £30 a year, insured customers for up to £100,000 if their cards were stolen. The problem was, their banks already covered them for that. And the Financial Services Authority (the FCA’s predecessor) said that on the second, a £90-a-year identity theft product, CPP had over-stated the risks and consequences of ID fraud.
The FCA reckons seven million people could be entitled to compensation for the amount they’ve paid for their policy since January 2005, plus 8% - an average payout of £300.
Beginning next week, CPP will write directly to customers it thinks are entitled to a claim. With an estimated 4.4 million policies sold between January 2005 and March 2011 – generating £354m in gross profit (and 18.7 million policies renewed, bringing in £656m), that adds up to a pretty hefty sum.
By now, though, banks are well-versed in reacting to impending scandals. Whereas with the PPI scandal, banks spent months in court fighting government accusations, this time they’ve already clubbed together to create a £1.3bn redress scheme, and have agreed to bankroll an ad campaign in national newspapers alerting customers.
Martin Wheatley, the FCA’s chief executive said the organisation was ‘encouraged that, despite their different business needs, a large number of firms have voluntarily come together a redress scheme that will provide a fair outcome to customers.
So with any luck, consumers will avoid the nuisance calls from ambulance-chasing lawyer types that plagued the PPI scandal. That said, PPI was originally only supposed to cost far less than the £15bn in compensation banks have now set aside for it. So this could yet mushroom.
So after PPI and interest rate swaps, here's yet another form of dubious insurance that benefits the seller rather than the customer. If things continue in this vein for much longer, our retail banks will end up handing most of the 'profits' they made in the last decade back to punters, in the form of compensation. It's justice of a sort, but things should never have got this bad in the first place.