Agreement ‘will help boost the public’s trust in finance sector’

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

The Financial Conduct Authority (FCA) said it had 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 these products. The FCA said that the security products had some “unnecessary” features. They covered fraudulent use if a card was lost or stolen. However, this was unnecessary, the FCA found, 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 FCA said. 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 said the agreement had 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, which means payouts are likely to start later in the year. 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”, which will land on their doorstep in around April or May. It 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.

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.”

Martin Lewis, the founder and editor of consumer help website MoneySavingExpert.com, said that policies were being sold “to fill a gap that didn’t exist, and people need to get their money back”.

But he said the scheme must make sure that it operates in a “robust and transparent way”.

A spokesman for the UK Cards Association, the trade association for the card payments industry, said: “The FCA has announced that Affinion and the banking and credit card industry have voluntarily agreed to compensate customers for some insurance policies covering the loss or theft of bank cards. We are pleased an agreement has been found after collaborative discussions and that customers will now have the opportunity to be involved in a compensation scheme.”