Yet another bank scandal: credit card protection products

The Guardian reports on the latest bank scandal involving the sale of unnecessary credit card protection.

While the dollars involved are not that large, this is yet another example of predatory behavior by the banks towards their customers.

In this case, the banks took advantage of their retail customers.

Your humble blogger cannot stress enough the need to bring transparency to every corner of the banks in order to bring about a culture change that punishes bad behavior towards retail or institutional customers.

So long as banks can continue to operate in the dark, the culture of banks will not change and we will keep having these types of scandals.

Britain's high-street banks, already reeling from the cost of the payment protection insurance scandal, could be forced to pay out hundreds of millions of pounds more to compensate customers for a widely mis-sold card protection product.

The banks are in discussion with the Financial Services Authority about the way to reimburse customers after the watchdog announced it had hit identity theft and credit card insurance company CPP for £33.4m in fines and compensation to customers for what the regulator described as a "serious offence". 

Of the £33.4m, CPP expects £14.5m to be paid to customers mis-sold its card protection and identity protection products between January 2005 and March 2011. 

However, this only covers direct sales made by CPP; the vast majority of sales were made via high street banks including Santander and HSBC. 

A number of the banks "introduced" their customers to CPP by affixing a sticker to new credit or debit cards sent to customers. The sticker prompted the customer to call a number, which was CPP's, either to activate the card or to confirm receipt of it. When the customer did ring, CPP also used the opportunity to offer card protection and/or identity theft protection to the customer....

The CPP card protection product would offer to cancel all a cardholder's cards if they went missing or were stolen. It also offered key cover and an emergency cash advance. 

But the element of the product the FSA objected to was the £100,000 of card protection – this was not needed because customers are already covered by their banks in almost all cases if their cards are stolen.

The FSA also said identity protection was mis-sold because CPP overstated the risks and consequences of identity theft during sales of the product. The card insurance cost £35 a year while the identity theft cover was sold for £84....

Santander has already taken an unspecified provision to cover CPP, included in a charge of £232m in its third quarter results....

HSBC said it did not use the card activation process to sell CPP's products, but confirmed it did sell the company's card protection product to customers. It is believed Barclays sold the insurance via its card activation process and that the caller thought they were buying from Barclays not CPP.