The UK Financial Services Authority (FSA) Thursday announced its largest retail conduct fine of £10.5 million ($15.88 million) for the mis-selling of insurance products.
The FSA levied the fine against Card Protection Plan Ltd. (CPP), and that CPP has also agreed to pay estimated redress of about £14.5 million to affected customers. The regulator reports that CPP estimates that its total costs will be £33.4 million, which includes the fine, redress, and the costs associated with the investigation.
The FSA says that it found widespread mis-selling of CPP’s two main UK products between January 2005 and March 2011. It said that that the firm failed to treat its customers fairly and did not provide clear information to its customers, including findings that it sold unnecessary coverage, overstated the risks and consequences of identity theft. It also says that its sales people were overly aggressive, and were rewarded from dissuading customers from cancelling their policies.
“CPP also failed to control its affairs responsibly and effectively. This is because it was aware that significant issues about its sales and compliance processes had been raised by the FSA but it failed to take sufficient action to deal with them,” it says.
The FSA reports that CPP sold 4.4 million card protection and identity protection policies during the period in question, and received £188.3 million in customer payments. It also renewed 18.7 million policies and received £656.5 million in customer payments for those renewals. CPP generated gross profits of £354.5 million and net profits of £79.1 million, it says.
Following FSA intervention in early 2011, CPP has improved its renewal process and extended the cooling off period during which customers can change their minds about buying the product from 14 days to 60 days. It has also agreed with the FSA requirements to stop new sales and to stop trying to keep customers who call to cancel their policies. Additionally, it must appoint an external monitor to scrutinize and report on its claims and complaints handling.
“This is a serious case, one that has warranted our joint largest retail conduct fine and generated a sizeable bill for consumer redress,” said Tracey McDermott, the FSA’s director of enforcement and financial crime. “While CPP’s products were relatively inexpensive, they were sold widely and CPP encouraged its sales agents to be overly persistent. This exposed a very large number of customers to the unacceptable risk of buying products they did not want or need. Further, we had already warned the firm that it might be misleading customers about a feature of card protection from which customers were unlikely to benefit, but insufficient action was taken to rectify this.
“We have highlighted before our concerns about low cost insurance that offers little or no value to the customer. This case shows the action we will take if our warnings are not heeded,” McDermott added.
The FSA says that CPP agreed to settle at an early stage entitling it to a 30% discount on its fine. Without the discount, the fine would have been £15 million.