CPP compensation scheme opens to 7m misled credit cardholders

3 February 2014, 20:46   By Julia Kukiewicz

CREDIT cardholders who were mis-sold protection policies by CPP will be able to make a claim for redress from this month, the Financial Conduct Authority (FCA) confirmed today.

credit cards and pound coins
Credit: Kjpargeter/Shutterstock.com

The regulator for the financial services industry said that seven million consumers will receive a letter about redress in the coming month.

Those who consider that they were mis-sold a protection product will have until the end of August this year to complete their claim form and send it back to the redress scheme.

Customers may be entitled to compensation if they were given misleading or unclear information when they were sold their card protection policy, and they purchased the policy based on this information.
CPP redress scheme site

If all goes to plan, those due CPP compensation who send back their claim straight away will start to receive their money, between £30 and several hundred pounds for each policy depending on the circumstances, in March.

And it looks likely that it will go to plan: the CPP redress scheme has been far more orderly than the complaints freezes and multiple court dates that preceded PPI compensation.

Amazingly, CPP itself may even be able to continue trading.

£1.3 billion due to 7 million consumers

If every policyholder that is entitled to claim under the redress scheme does so, the total bill will come to £1.3 billion.

£65.8 million (previously £14.3 million) of that will come directly from CPP but the vast majority will come from banks that partnered with CPP.

As well as the cost of policies sold or renewed by CPP, compensation includes annual interest of 8%.

CPP redress: banks involved
  • Bank of Scotland
  • Barclays Bank (Barclaycard)
  • Canada Square Operations Limited (Egg cards)
  • Capital One
  • Clydesdale Bank
  • Home Retail Group Insurance Services Limited (retailer cards including Argos and Homebase)
  • HSBC
  • MBNA (including some Virgin Money cards)
  • Morgan Stanley Bank International Limited
  • Nationwide Building Society
  • Santander UK
  • The Royal Bank of Scotland
  • Tesco Personal Finance

In terms of individuals, the amount of compensation available will depend on the CPP product held and how long it was active.

A typical CPP annual policy for ID theft was about £80, which means that those who were mis-sold initially and then went on to renew their policies over a number of years will be due hundreds of pounds.

Card protection policies were just £30 annually, however.

In addition, those that made a claim on their protection policy will have the claim amount taken from the total compensation.

So, for example, someone that held an £80 annual policy for three years but claimed £70 back from CPP under the policy terms would only get £170 back in redress, rather than the £240 they paid out overall.

Unlike PPI, having claimed on the policy is no barrier to receiving redress since, under the scheme rules, everyone that took out a policy while these sales practices were ongoing is eligible for compensation.

Learning from PPI

As we've reported previously, the CPP crisis demonstrates that banks seem to have learnt little from PPI, which is now estimated to have cost the sector £2 billion in compensation and associated costs.

CPP worked closely with the credit card departments of some of the UK's biggest banks - new credit cardholders were often instructed to call the insurer to 'activate' their cards, for example (more here - yet internal compliance reviews never picked up on, or chose to ignore, salespeople making wildly overblown claims about the risks of identity theft in order to encourage people to claim.

No wonder: the providers were getting kickbacks of up to 60% of the face value of a policy on CPP sales.

Useful links: PPI
Insider's guide to reclaiming PPI
Cold calls and PPI guide here
Confused by PPI? Catch up

At least the regulator seems to have learnt something.

The new redress scheme is designed to curb the inefficiencies and excesses of PPI redress: consumers who are affected will all be contacted by the scheme, rather than having to apply individually, and the scheme structure strongly discourages the involvement of claims firms which have lately become a menace to consumers.

However, poor quality protection products continue to proliferate in our credit card market.

As we report here, many major providers still offer ID theft protection or very similar products.

CPP retain 70% of customers

18% of eligible CPP customers voted in a redress meeting held on January 7th this year, 98% in favour of the scheme going ahead.

It is likely that the vast majority of the customers will choose to claim compensation when they receive a claim form this month.

However, CPP executives continue to say publicly that many customers remain happy with their protection policies and point to a 70% customer retention (presumably, policy renewal) rate.

In the past few months, we've heard from CPP customers who found that their policies were automatically renewed by the insurer, despite the scandal and we've seen the company launch a number of new products.

One, Airport Angel, has become a regular feature of packaged current accounts.

Complaints about packaged accounts and concern that the products are often mis-sold, to customers that do not want or need the insurance products they contain, have been growing in the past few months.

The Financial Ombudsman Service (FOS) said last week that they received 3,107 complaints about packaged accounts between April and December 2013, a 90% increase on the complaints received in the previous financial year in total.

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