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Mis-sold Card Protection by CPP or your bank?

Posted on Wednesday, 28th November 2012 by

The beleaguered financial services sector is facing another potential mis-selling scandal, with the news that 4.4 million people may have been mis-sold ‘Card Protection’ by CPP or through their bank.

An FSA investigation has revealed the extent of this latest scandal, which has made millions of pounds’ profit for CPP for selling insurance for a risk that simply does not exist.

CPP – Card Protection Plan Limited – sold insurance policies to credit and debit card customers either directly or through referrals from several major high-street banks.

However, in many cases, their Card Protection and Identity Protection plans simply were not needed, because of the statutory protection already in place for victims of fraudulent card transactions and identity theft.

Direct customers of CPP in particular were also subjected to the badgering of over-eager sales staff, while the company made it unreasonably difficult for existing customers to cancel their policies later on.

Overall, the FSA says CPP’s initial policy sales made £354.5 million in gross profit, while 18.7 million renewals added £656.5 million more to the company’s earnings.

What is Card Protection?

As a product, Card Protection typically cost customers £35, of which just 60p went towards providing the actual insurance and non-insurance elements of the agreement; £34.40 went to CPP as ‘insurance intermediary’, with a percentage then paid to business partners for referring the customer to CPP.

Its six key features were:

  1. A single telephone number to call, in order to have CPP inform all of the customer’s card providers that their cards had been lost or stolen.
  2. Up to £5,000 of protection against any unauthorised or fraudulent purchases made before a card was reported lost or stolen.
  3. Up to £100,000 of protection against unauthorised and fraudulent purchases made after the card was reported lost or stolen.
  4. £1,000 of cover for calls made on a lost or stolen mobile phone.
  5. Delivery of emergency loans and cash to cardholders who lost their cards while abroad.
  6. Lost key cover, a policy extension to cover the cost of replacing lost keys.

The Identity Protection product offered similar features designed to allow customers to monitor their credit history and identify any fraudulent transactions, with legal advice and assistance to pursue any cases of identity theft or fraud.

Statutory protections

Under UK law, several of the features listed above are simply protecting against risks that do not exist.

For instance, fraudulent purchases made before a card is reported as lost or stolen are only the customer’s liability up to the first £50, unless they have been grossly negligent in allowing another individual to use their card.

Once the card issuer has been notified, customers are not liable for any further fraudulent costs incurred at all – meaning the £100,000 of purported protection applied to a cost that could never have been faced by the policyholder.

Both of these forms of ‘protection’ were introduced early in CPP sales calls to customers, implying that they were key features of the policy, when in reality both were almost entirely useless.

Sales procedures

The product itself is not the only area where the FSA found cause for concern; CPP and their business partners have also been reprimanded for their sales procedures.

For instance, in some cases, new cardholders were told to call a number to activate their card – but when they did, they were connected directly to a member of CPP sales staff who attempted to sell them Card Protection and Identity Protection policies.

Sales were supposed to be ‘non-advised’ – and as such, should not have directly recommended CPP’s policies for the specific perceived risks discussed – but the script given to sales staff went so far as to include a sheet on ‘objection handling’, in which the potential customer’s concerns about the product were directly challenged.

This was often done using fabricated statistics, such as the claim that “APACS state 1 out of 5 of us will be a victim of ID crime by the end of the year”.

In fact, in 2008 when the document was written, APACS had never made that claim, and issued a press release criticising the misuse of the statistic by CPP.

Similar errors were found in the sales procedures for Identity Protection, and in the Welcome Pack sent out to new customers.

Multiple cardholders

Perhaps the most concerning element of the product applies to customers who registered multiple cards with CPP, in order to make use of the ‘one call stops all’ feature (bullet point 1 in the key features list above).

While this was supposed to allow them to cancel all of their cards from multiple different providers with a single call to CPP, the product smallprint gave CPP access to use any of the protected cards to provide payment for the insurance premiums.

As such, if a heavily indebted customer had had one of their cards frozen by a provider, CPP could simply take payment from another of their protected cards.

In some cases, this may have also meant customers who cancelled the original card on which the protection was taken out continued to have payments deducted from their other cards, even if they thought the cancellation would also end their policy with CPP.

FSA enforcement action

The FSA has now taken action against CPP, issuing a £15 million fine, reduced to £10.5 million because CPP agreed to prompt payment.

An estimated £14.5 million has also been earmarked to be repaid to customers who were sold the product, or whose insurance was renewed, unfairly.

In total, CPP have estimated that the enforcement action will cost them £33.4 million including the costs incurred during the investigation.

“This is a serious case – one that has warranted our joint-largest retail-conduct fine and generated a sizeable bill for consumer redress,” says FSA director of enforcement and financial crime Tracey McDermott.

“While CPP’s products were relatively inexpensive, they were sold widely, and CPP encouraged its sales agents to be overly persistent.”

Making a claim

If you are uncertain of how to make a claim for having been mis-sold Card Protection by CPP or your bank, by any other party, or suspect you have been the victim of any other kind of mis-selling from any financial services provider, we can help.

Call to speak to us with no obligation to pursue your case, and we can help you to understand the options for proceeding, in order to reclaim any out-of-pocket funds that have been paid to providers for such products.

In this instance in particular, where the so-called ‘risks’ protected against basically never existed in the first place, the prospects of success are relatively high, and several years’ cumulative premiums could well be worth making a claim for, even if you have not suffered any great hardship because of CPP’s actions.

Talk to our legal team

The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.

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