If you bought a card or identity theft protection policy from a bank or a firm called Card Protection Plan Limited (CPP), you may in line for compensation. Around seven million consumers are set to receive payouts.
Why is this happening?
The Financial Conduct Authority (FCA) has found widespread mis-selling of card protection and identity protection policies which were provided by CPP and sold by several banks, credit card issuers and directly by the firm.
Products offered by banks and card issuers were often sold when customers called to register or activate a debit or credit card.
Customers were given misleading and unclear information about the policies so they bought cover that either was not needed, or to cover risks that had been exaggerated.
Which banks and credit card issuers have agreed to the compensation scheme?
Customers bought and renewed about 23 million policies from CPP, a bank or credit card issuer.
The 13 companies which have signed up to the redress scheme are Bank of Scotland, Barclays, Canada Square Operations (formerly Egg Banking), Capital One, Clydesdale Bank, Home Retail Group Insurance Services, HSBC, MBNA, Morgan Stanley, Nationwide Building Society, Santander, RBS and Tesco Personal Finance.
The involvement of the banks and credit card issuers reflects their involvement in introducing customers to CPP's products and so they must share responsibility for putting the situation right.
What sort of sum are those entitled to compensation likely to receive?
The total compensation bill could be up to £1.3 billion, with redress per customer depending on the type of policy or policies owned and the length of time they were held for.
If you are entitled to compensation you will have the premiums you have paid since January 14 2005 returned to you, less any sums paid out under the policy, plus 8% interest on the amount owed. This date in 2005 has been chosen because it is the date that the sale of general insurance products came under the scope of FCA regulation.
Card protection costs were around £30 a year and identity protection costs were about £80 a year.
What do customers need to do to get their compensation?
Nothing at this stage and they will not have to pay a claims management firm to chase compensation. CPP is going to write to affected policyholders from August 29 to explain how the compensation scheme will work and what they need to do next.
How will the compensation scheme work?
Compensation payouts are expected to be made from next spring and there are several approval hurdles which will need to be cleared first.
After policyholders have received their initial letter from CPP, they will be invited as the scheme's "creditors" to vote on whether they want it to go ahead. This process is a legal requirement.
If the vote goes in favour of the scheme, the High Court will be asked to approve it. If the scheme gets the green light from the High Court, CPP will write to policyholders again to ask whether they want to be considered for compensation.
This would include a claim form that must be completed, signed and returned to CPP before a specified deadline.
Customers who voted against the scheme going ahead would still be able to submit a claim for compensation.
If a customer does make a claim, their policy will be cancelled - even if their claim is rejected.
The FCA advises customers to therefore think carefully about whether they find some features of the product useful before they make a claim.