Watchdog probe sees CPP shares plunge

SHARES in credit card insurer CPP Group plunged more than 50 per cent yesterday after it revealed the City watchdog has launched a probe into its products which it said will hit this year’s profits.

York-based CPP said the Financial Services Authority is investigating “alleged failings” in its sales calls for its credit card and identity theft products.

After tumbling 53 per cent at one point yesterday, shares in the group closed down 46 per cent at 150p, having shed 130p.

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CPP, which floated on the London Stock Exchange a year ago, suspended sales of its ID theft products but insisted it has not misled customers and will fight the FSA probe.

“We were quite surprised that they came back to us as strongly as they did,” said finance director Shaun Parker.

“We disagree with the FSA. When our customers are in the position where they have to call on our services, the help we can give them is extremely valuable.”

Mr Parker said the probe focuses on its ID theft product and the FSA is happy with its card protection product, which it will carry on selling.

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The ID theft product offers services to help people quickly identify if they have been the victim of a fraud and assistance to help them rectify the problem.

It also includes a small insurance component, which means sales of the product are supervised by the FSA. However, this insurance covers only the cost of ‘out-of-pocket’ expenses, and does not cover the cost of an actual fraud.

The group is now redesigning the product so it no longer includes insurance and hopes to start selling the new version within six weeks.

CPP added it may need to review past sales to see if any customers needed to be paid compensation.

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It warned the changes will lead to lower revenues and profits for the year, and while it expects to be able to offset some of the fall through higher sales of its other products, such as card protection, operating profits for 2011 are still likely to be below the lower end of analysts’ expectations.

CPP sells many of its products through tie-ups with firms such as Royal Bank of Scotland. Analysts warned the probe could scare off its business partners.

“The overriding bigger picture question is how the business partners will react to it given the products are often sold in their name, and they are unlikely to want negative publicity,” warned UBS analyst Alex Hugh in a note to clients.

Mr Parker said: “We are speaking to our business partners. We have long-standing relationships with most of them and they listen to the calls we make on a regular basis.

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“Based on those years of experience they are very happy with the work that we do with them. We have no reason to believe that they would look away from us.”

CPP was founded 30 years ago by entrepreneur Hamish Ogston, who still holds 57 per cent of its shares.

Mr Parker said the probe arose when the regulator asked for recordings of its sales calls, as part of a routine investigation.

As a result the group was called into a meeting on March 18 where the FSA raised the issues.

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“They have some questions and concerns about the way they think we have been selling the (ID) product,” said Mr Parker.

“They believe that there’s some confusion in the minds of consumers as to whether the insurance covers the out-of-pocket expenses or the cost of the fraud.”

However, Mr Parker insisted that out of its 6,000 ID theft claims last year, “only one or two” customers were confused about what insurance covered.

He added the FSA was concerned that the sales calls appeared to exaggerate the threat posed by ID fraud – something the group also contests.

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“1.8 million people are affected by ID fraud in the UK every year and the cost of that is £2.7bn,” said Mr Parker, citing figures from the National Fraud Authority. “This is a serious issue.”

CPP does not break down individual numbers of its different policy types, but analysts believe it has about a million ID theft products out of a total 11.2m policies in the UK.

“The announcement is clearly a blow to investor sentiment, with increased uncertainty surrounding the group while the FSA carries out its investigation,” said analysts at JP Morgan Cazenove. “While there is no anticipated cash impact in the near-term, there remains a risk that the FSA investigation could result in either a refund of the policy premium to the customer or a fine, should the FSA find failings in the way products were sold.”

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