Compensation deal on card products

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Published: Tuesday 27th January 2015 by The News Editor

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As many as two million credit card holders could be in line for compensation after being sold security products with some features that they did not need, the City regulator has announced.

The Financial Conduct Authority (FCA) said it has reached an agreement over a compensation package with 11 high street banks and credit card issuers and insurance provider Affinion.

The banks and credit card issuers taking part in the scheme are AIB Group (trading as First Trust Bank in Northern Ireland and Allied Irish Bank in Britain), Barclays Bank, Capital One, Clydesdale Bank, HSBC Bank, Lloyds Bank, Northern Bank (trading as Danske Bank), Santander, Tesco Personal Finance, the Co-operative Bank, and the Royal Bank of Scotland.

The scheme will allow people to claim compensation if they have concerns about the way card security products with the names card protection, sentinel, sentinel gold, sentinel protection, sentinel excel and safe and secure plus were sold to them. Customers paid £25 a year on average for the products.

The FCA said that the security products had some “unnecessary” features. They covered fraudulent use if a card was lost or stolen. But this was not necessary because a customer’s card issuer was typically responsible for any transactions after someone reported that their card had disappeared.

In the period before a card was reported as stolen, customers would only be liable for unauthorised spending on that card in limited circumstances. The bank or card issuer usually covered customers for anything over the first £50 if transactions took place before the card was reported missing.

The FCA has not conducted a formal investigation into the matter, and said the agreement has been reached after voluntary negotiations. No enforcement action has been taken against Affinion or any of the banks or credit card issuers.

The banks and credit card issuers either sold Affinion’s security products directly, or introduced customers to them. The FCA said that Affinion and the other firms are taking part in the scheme “without any admission of liability of any description on their part”.

The agreement must now be voted on by those consumers who will be eligible to apply for compensation and formally approved by the High Court, meaning payouts are likely to start later in the year. The majority of people who vote will need to do so in favour of the scheme in order for it to go ahead.

Those eligible for compensation will have bought or renewed the security products between January 14 2005 and August 2013. The products may have been sold alongside the card when it was taken out or the customer may have been contacted afterwards.

The FCA said approximately two million customers should look out for a letter from a company called “AI Scheme Limited” landing on their doorstep in around April or May which will include an invitation to vote for or against the scheme.

The regulator said that the total amount of compensation paid will depend on how many people wish to make a claim and how long they held the product for. Even if someone has voted against the scheme, they can still go on to claim compensation if it goes ahead.

If customers are entitled to compensation, they will receive the amount they paid for the policy since January 2005, less any money paid out by the product and any applicable taxes. Interest of 8% interest per annum will be added to what they are owed.

If the scheme is approved, customers will need to complete and return a “simple” claim form and the rest of the process will be automatic, the FCA said, adding that no-one will need to use a claims management company, which would take a chunk out of any payout.

Someone making a compensation claim will have their product cancelled, even if that claim is rejected, so customers who find the product useful should think carefully before making a claim, the FCA said.

The scheme will not cover people who had a card security product as one of the perks contained within a packaged bank account.

Another scheme which operated in a similar way was set up last year to compensate people who took out Card Protection Plan Limited (CPP) card or identity protection insurance products.

Some 2.4 million claimants out of a potential seven million who were eligible applied before a deadline to receive their compensation.

Tracey McDermott, director of supervision and authorisations at the FCA, said: “If approved, this scheme will provide those who may have concerns about the way their card security product was sold to them with a simple and free way to claim compensation…

“I would encourage anyone who receives a letter from AI Scheme Limited in April or May 2015 to vote for the scheme.”

Published: Tuesday 27th January 2015 by The News Editor

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