LONDON - Some of the largest banks and credit card companies in Britain will have to pay a total of up to £1.3 billion, or $2 billion, to customers who were sold inappropriate financial products, a British regulator said on Thursday.
The compensation is the latest in a series of fines that British banks have been forced to pay as a result of actions taken during the financial crisis and is a further blow to chief executives who are trying to rehabilitate the banks’ reputations.
So far, banks including Barclays, HSBC and Royal Bank of Scotland have set aside more than £12 billion combined to cover fines and settlements. The transgressions include inappropriate sales of insurance and complex financial products to consumers and small businesses. Banks have also paid regulatory fines related to the Libor rate-rigging scandal.
In the latest ruling, the Financial Conduct Authority, the British regulator, said on Thursday that it had reached an agreement with 13 banks and credit card companies to reimburse customers who were sold credit card insurance they did not need. The payments are to start early next year, the regulator said.
The settlement concerns credit card protection insurance that was sold inappropriately to seven million British customers with about 23 million credit card accounts since 2005. Consumers typically paid £30 a year for credit card protection and £80 a year for so-called identity protection. The insurance was either not needed or the benefits were exaggerated by the companies to persuade customers to buy it, the British regulator said.
The banks and credit card companies, which include Morgan Stanley, Santander and Capital One, must reimburse customers whom they referred to Card Protection Plan, a credit card insurance firm that sold policies to consumers.
Last year, Card Protection Plan agreed to a £10.5 million fine with British regulators for its role in the activities.
“A large number of firms have voluntarily come together to create a redress scheme that will provide a fair outcome for customers,†Martin Wheatley, head of the Financial Conduct Authority, said in a statement. “We believe this will be a good outcome for customers who may have been mis-sold the card and identity protection policies.â€
Analysts said that Barclays and HSBC were likely to be among the firms most affected by the ruling because they have extensive credit card operations.
The settlement comes at an awkward time for Barclays and its chief executive, Antony Jenkins. The bank is preparing for a £5.8 billion rights issue next month.
Last month, Barclays said it had set aside an additional £2 billion in the second quarter related to what regulators have determined to be inappropriate sales of insurance and complex financial hedging products to some of its clients.
The bank also agreed to a $450 million settlement with American and British authorities last month after some of its traders tried to manipulate the London interbank offered rate, or Libor, for financial gain.
Other chief executives, including Stephen Hester of Royal Bank of Scotland and Stuart Gulliver of HSBC, have also outlined plans to improve their firms’ compliance and management structures in the wake of large financial penalties.
