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Insurance company CPP hit by record FSA fine | Insurance company CPP hit by record FSA fine |
(about 2 hours later) | |
Card protection company CPP faces a bill of £33.4m after being censured by the City watchdog for mis-selling insurance products. | Card protection company CPP faces a bill of £33.4m after being censured by the City watchdog for mis-selling insurance products. |
The bill includes a fine of £10.5m from the Financial Services Authority - the joint largest for a retail group - and £14.5m in compensation to customers. | The bill includes a fine of £10.5m from the Financial Services Authority - the joint largest for a retail group - and £14.5m in compensation to customers. |
The York-based group, which sold products aimed to protect people against identity theft, has apologised. | The York-based group, which sold products aimed to protect people against identity theft, has apologised. |
The FSA said sales agents were encouraged to be "overly persistent". | The FSA said sales agents were encouraged 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," said Tracey McDermott, of the FSA. | "This exposed a very large number of customers to the unacceptable risk of buying products they did not want or need," said Tracey McDermott, of the FSA. |
Risks overstated | Risks overstated |
CPP sold a card protection product, which cost about £35 a year, that was designed to cover losses if a card was lost or stolen. | CPP sold a card protection product, which cost about £35 a year, that was designed to cover losses if a card was lost or stolen. |
It said customers would benefit from up to £100,000 of insurance cover, but customers were already covered by their banks. Generally, cardholders are not liable for unauthorised card payments on lost or stolen credit and debit cards. | It said customers would benefit from up to £100,000 of insurance cover, but customers were already covered by their banks. Generally, cardholders are not liable for unauthorised card payments on lost or stolen credit and debit cards. |
A second product was sold for £84 a year, that was designed to cover costs if the customer's identity was stolen. | A second product was sold for £84 a year, that was designed to cover costs if the customer's identity was stolen. |
Feeling a sense of deja vu about persistent sales staff selling insurance to consumers who did not want or need it? | |
That's because this latest episode echoes some aspects of the huge mis-selling of payment protection insurance (PPI). | |
Compensation levels will be lower than for PPI - because the cover was relatively cheap. Yet, many thousands of people will receive letters telling them they may have a claim. | |
And the focus may now shift to CPP card protection that was sold via some banks, and whether this will lead to another round of compensation at a later date. | |
The FSA found that CPP overstated the risks and consequences of ID theft when this insurance was being sold. | The FSA found that CPP overstated the risks and consequences of ID theft when this insurance was being sold. |
During the period of mis-selling between January 2005 and March 2011, CPP sold 4.4 million policies and generated £354m in gross profit, the FSA said. | |
Some 18.7 million policies were renewed during the same period, generating an income of £656m. | |
Some card providers put a sticker on new credit or debit cards sent to customers. It encouraged them to call a number, which was CPP's, in order to confirm receipt of the card. CPP then used the opportunity of the call to offer card protection insurance. | Some card providers put a sticker on new credit or debit cards sent to customers. It encouraged them to call a number, which was CPP's, in order to confirm receipt of the card. CPP then used the opportunity of the call to offer card protection insurance. |
However, this fine from the FSA does not include this and only relates to the hundreds of thousands of direct sales by CPP. | |
'Sorry' | 'Sorry' |
href="http://www.fsa.gov.uk/static/pubs/final/card-protection-plan.pdf" >The FSA investigation also found that: | |
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New CPP chief executive Paul Stobart said the company had taken steps to overhaul its practices. | New CPP chief executive Paul Stobart said the company had taken steps to overhaul its practices. |
"We are deeply sorry for the errors and wrongdoings of the past and are paying a heavy penalty through what is a large fine," he said href="http://www.investegate.co.uk/cppgroup-plc/rns/statement-re-conclusion-of-fsa-investigation/201211150700101699R/" >in a statement. | |
"The next steps for the team are to complete the transformation programme and to rebuild our business and our reputation in the market." | |
It has adhered to a FSA request to stop sales of the insurance products, unless they are part of a package. It has also stopped trying to retain the business of customers who ring to cancel their policies. | It has adhered to a FSA request to stop sales of the insurance products, unless they are part of a package. It has also stopped trying to retain the business of customers who ring to cancel their policies. |
Customers now have a 60-day cooling off period to change their mind over buying the insurance, compared with a 14-day option previously. | Customers now have a 60-day cooling off period to change their mind over buying the insurance, compared with a 14-day option previously. |
Details about compensation for customers are still being discussed by CPP, some of its main business partners, and the FSA. Some customers will be written to by CPP. | |
The FSA has agreed to CPP paying the fine in instalments, owing to the company's financial position. It has been told to complete the payments by December 2014. |