British regulators have reached a settlement with 13 banks and credit card issuers over the mis-selling of credit card insurance that could entail up to £1.3 billion in redress to consumers.

The UK Financial Conduct Authority (FCA) announced that it has reached an agreement with an insurer, Card Protection Plan Ltd. (CPP), and various major banks and credit card issuers concerning redress for customers who were mis-sold CPP’s card protection and identity theft protection policies.

The deal could mean redress of up to £1.3 billion for seven million customers, who bought and renewed about 23 million policies since 2005 (when it received regulatory authority over this type of insurance), the FCA notes. The firms have agreed, subject to court and customer approval, to a redress scheme that creates a simple process for customers to make a claim.

The FCA says that the products were widely mis-sold with customers given misleading and unclear information about the policies so that they bought cover that was either not needed, or to cover risks that had been greatly exaggerated. In November 2012 the FCA’s predecessor, the Financial Services Authority (FSA), issued its joint largest retail fine of £10.5 million to CPP for the mis-selling activity.

The firms that have voluntarily agreed to be part of the redress process and will provide the money needed to pay redress include: Bank of Scotland Plc, Barclays Bank Plc, Canada Square Operations Ltd., Capital One (Europe) Plc, Clydesdale Bank Plc, Home Retail Group Insurance Services Limited, HSBC Bank Plc, MBNA Limited, Morgan Stanley Bank International Limited, Nationwide Building Society, Santander UK Plc, The Royal Bank of Scotland Plc, and Tesco Personal Finance Plc.

The FCA says that the involvement of the banks and credit card issuers in the settlement reflects the fact that they introduced customers to CPP’s products and “so must share responsibility for putting things right”.

The redress is not expected to be paid out until spring 2014.

“We have been encouraged that, working closely with the FCA and despite their different business needs, a large number of firms have voluntarily come together to create a redress scheme that will provide a fair outcome for customers. This kind of collaborative and responsible approach is a good example of how firms are taking more responsibility and helping — step by step — to rebuild trust,” said Martin Wheatley, chief executive of the FCA.

“We believe this will be a good outcome for customers who may have been mis-sold the card and identity protection policies. Subject to CPP’s customers approving the scheme, these policy holders will be able to claim a full refund of premiums with interest,” he added.