Millions of customers could be in line for compensation after being sold insurance for their bank cards which was worthless.
The products were sold to customers on the promise that they would be protected against losses if their cards were stolen, however banks are already obliged to cover these costs in most cases, so the insurance was useless.
The Financial Conduct Authority said today that if you bought a card security product called Card Protection, Sentinel (including Sentinel Gold, Protection and Excel) or Safe and Secure Plus from a bank, credit card issuer or Affinion International Limited, you may be entitled to compensation.
Around two million people will receive a letter from AI Scheme Limited about a compensation scheme that the watchdog agreed with Affinion and 11 banks and credit card issuers.
The compensation announcement is separate to the £450m package agreed for customers of CPP in 2014, a similar card protection product sold by the banks to 2.3 million people.
The FCA said: “Our view is that customers did not need this cover, as their bank or card issuer is typically responsible for any transactions after they tell it their card has been lost or stolen.”
David Mann, head of money at uSwitch.com, said:“The FCA should be applauded for taking a step in the right direction and steering the banking industry to take voluntary action.
“However, this situation will feel all too familiar to many consumers who will no doubt be questioning why their bank sold them security products they had no need for. There is still a long way to go to fully restore trust in banks. Products and services should only be sold in a clear and transparent manner so people only ever pay for the products they actually need.”
These customers bought or renewed card security products from Affinion, a bank or credit card issuer between January 2005 and August 2013.
The compensation scheme has been agreed with Affinion and the following 11 banks and credit card issuers:
AIB Group (UK) Plc trading as First Trust Bank in Northern Ireland and Allied Irish Bank (GB) in Great Britain, Barclays, Capital One , Clydesdale Bank, HSBC, Lloyds Bank, Northern Bank Limited trading as Danske Bank, Santander UK, Tesco Personal Financ, The Co-operative Bank and Royal Bank of Scotland.
The amount to be paid to each eligible product holder will depend on how long they have had the product and whether any successful insurance claim was made.
However the FCA said that the scheme will not cover you if you have a card security product linked to a bank account, such as where it is a feature of a packaged bank account.
It said customers do not have to do anything at this stage. AI Scheme Limited will write to eligible card security product holders to explain how the compensation scheme will work and what you have to do next.
You should read the letter from AI Scheme Limited and keep it in a safe place as you may need to refer to it again. In particular you should note your scheme reference number which is printed on the letter from AI Scheme Limited.
This may be useful if you call the dedicated scheme helpline (0800 678 1930), as you will have to confirm your identity. The dedicated scheme helpline is available from 28 January 2015. AI Scheme Limited website has further information.
Compensation is expected to be paid from the second half of 2015 but the following steps still have to be completed (and the timings are approximate):
Step 1: AI Scheme Limited writes to eligible customers from late January 2015 with more information about the compensation scheme.
Step 2: Customers will be invited to vote in April/May 2015 on whether they want the compensation scheme to go ahead. This is a legal requirement and a majority of customers will have to vote in favour of the compensation scheme for this to happen.
Step 3: If a majority of customers vote in favour of the compensation scheme the High Court will be asked to approve it.
Step 4: If the scheme is approved by the High Court, AI Scheme Limited will write to eligible customers again in August and September 2015 to ask whether they want to be considered for compensation.
Affinion and certain banks and card issuers continue to sell these card security products, but they no longer contain the unnecessary fraud insurance cover.