Bank-related troubles are far from over in the U.K. The latest
scandal to hit the banking sector involves CPP Group Plc as well
as 13 other major banks and credit card companies. The Financial
Conduct Authority (FCA) has imputed these companies of duping
customers into buying false CPP credit card insurance policies.
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The banks and credit card providers embroiled include
HSBC Holdings plc
Banco Santander, S.A.
The Royal Bank of Scotland Group plc
Capital One Financial Corp.
), MBNA, which is a wholly owned subsidiary of
Bank of America Corporation
) and Bank of Scotland, a unit of
Lloyds Banking Group plc
). Additionally, Canada Square Operations, Clydesdale Bank, Home
Retail Group Insurance Services, Nationwide and Tesco Personal
Finance have been accused as well.
About seven million customers who bought the insurance policies
since 2005 will be able to claim a reimbursement of the premiums
they paid, along with an interest of 8%. The compensation will
likely be paid early next year.
The charges of the FCA come as an additional harassment for
British banks, after the impact of a series of litigation
scandals and compensation payments. The banking sector in the
U.K. has been plagued by litigations related to the wrongful
selling of payment protection insurance to customers and interest
rate hedges to small businesses.
The Background Story
In 2011, Hamish Ogston - the founder of CPP Group - was awarded
the Commander of the Order of the British Empire (CBE) for his
services to business and the community. However, just a week
later, regulators began their scrutiny of the bank's sale of CPP
credit card insurance policies.
The banks and card companies were accused by regulators of
introducing customers to CPP Group's products. Many customers
were put in contact with CPP Group when they started activating
their new bank card. CPP Group then used the opportunity of the
call to offer card protection insurance. When a customer bought
an insurance policy, the bank used to get a commission.
CPP Group also sold a card protection policy worth nearly £30 a
year, designed to cover costs of a lost or stolen card. Another
insurance scheme, worth nearly £80 a year, was designed to cover
expenses if the customer's identity was stolen. However,
CPP Group allegedly misinformed about the risks and consequences
of identity theft when these were being sold.
During the period between Jan 2005 and Mar 2011, CPP Group sold
4.4 million policies and generated £354 million in gross profit.
Additional policies worth 18.7 million were renewed during the
same period, generating an income of £656 million.
The British banking system has yet to recover fully from the
financial crisis. Further, the long process of restructuring
bailed out banks is hampering the economy. The latest scandal is
bound to affect the fragile financial sector and add to its woes.
Notably, the credit card scam has cost CPP Group dearly. A £36
million 3-year refinancing deal from the bank's lenders in the
last month saved it from the risk of bankruptcy. Notably, the
company has already paid £54 million, including a £10.5 million
fine, related to the alleged sale of fraudulent credit card
insurance policies. The company also reported operating loss of
£3.5 million in the last six months.
However, we believe that increased regulatory surveillance will
keep fraudulent practices under check and aid in the economic