Scandal alert: is identity theft insurance the new PPI?
Believe it or not, yet another mis-selling scandal is engulfing financial services. This time it’s card and identity theft insurance, and banks should not be let off the hook. Have you ever bought card or ID theft insurance?
The total bill for payment protection insurance (PPI) compensation is likely to hit £16bn, making it one of the biggest mis-selling scandals in history. So after the PPI scandal, you might be forgiven for thinking that the last of the skeletons were out of the banking closet.
But in November last year, the Financial Services Authority (FSA) issued a £10.5m fine to Card Protection Plan Ltd (CPP) for heavy and sustained mis-selling of ID theft insurance and card protection cover between 2005 and 2011. While you may not have heard of CPP as a firm, most of its policies were sold through some of the big name high street banks that mis-sold PPI.
Piling up the profits
The FSA’s investigation paints a shocking picture. It found that CPP’s customers were told they’d receive up to £100,000 worth of insurance cover against fraudulent transactions with their card protection insurance. However, many customers didn’t need this cover as their bank already provided it. It also found that while CPP was selling identity protection, it often exaggerated the risks and consequences of identity theft.
To top it off, CPP’s flagship identity theft insurance product was sold for around £84 a year, but the actual cost to CPP of delivering the product was just £16 a year. This means that customers were paying a mark up of around 425%. Worse still, CPP’s card protection product, which would set customers back £35 a year, cost CPP just 60p to produce. That’s a profit of 5,733%.
So how widespread is the problem? Well, between 2005 and 2011, CPP sold 4.4m policies, making £79.1m profit and collecting £844m in premiums. Interestingly, CPP shared as much as 60% of the revenue it earned with the companies that introduced it to potential policyholders – mostly the banks. Banks often passed customers directly to a CPP salesperson when they called up to activate a new debit or credit card, giving CPP a chance to give the hard sell on their overpriced insurances.
Banks must take blame
While it’s right that CPP was publicly censured and ordered to pay £14.5m in compensation, the banks that sold their products should not be let off the hook. Knowingly passing customers over to a company that would try to sell a useless financial product is a show of contempt. The FSA must make sure the banks are hauled over the coals for their part in yet another mis-selling scandal.
If you do have either of these policies from CPP, you don’t have to take any action right now. CPP will be contacting all its affected customers in the near future and will pay compensation where appropriate. Did you take out card protection or ID theft insurance from CPP? Do you feel you were mis-sold?
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