Page last updated at 13:28 GMT, Wednesday, 10 December 2008

Egg fined over insurance sales

Egg advert
Egg has apologised to customers who have been affected

Credit card provider Egg could face a compensation bill of millions of pounds after being fined by the City watchdog for insurance mis-selling.

The Financial Services Authority (FSA) said there had been serious failures in Egg's sales of credit card payment protection insurance (PPI).

The company, fined 721,000 by the FSA, will face a bill of 1.67m for every 10% of customers who want a refund.

Recently the FSA has been strong action in relation to PPI mis-selling.

Alliance and Leicester was recently fined a record 7m for putting pressure on customers to buy PPI they did not want or need.

Problems

Failings were found in around 40% of telephone sales of credit card PPI at Egg between January 2005 and December 2007, according to the watchdog.

We are taking the matter very seriously and would like to apologise to any customers who have been affected
Egg spokesman

The pitch was made when Egg received a customer services call, or when it was making a sales call to a new customer.

Sales staff were told to over-emphasise the positive features of the insurance and in some cases applied PPI to the credit card without a customer's consent.

Margaret Cole, director of enforcement at the FSA, said Egg was likely to pay "substantial compensation" to customers.

"All firms must ensure that customers are treated fairly when selling PPI and if a customer does not want PPI, they should not be pressured into taking it," she said.

She was particularly critical of Egg for failing to admit to problems when heavy fines were being handed out to other firms and the FSA was making clear the need for action on PPI mis-selling.

Apology

Doug Taylor, head of personal finance campaigns at consumer association Which?, said: "It is good to see the FSA hitting firms in the pocket for poor PPI sales practice but more effort needs to go into ensuring that everyone who was mis-sold gets their money back."

A spokesman for Egg said: "We are taking the matter very seriously and would like to apologise to any customers who have been affected."

The Derby-based online bank will contact 106,000 customers with PPI, giving them the opportunity of reviewing whether they want or need the insurance. It will refund customers where appropriate.

This insurance covers repayments on loans or credit cards if the borrower is unable to pay because of loss of earnings caused by accident, illness, unemployment or death.

About 13 million products have been sold by a variety of providers in the UK, but consumer groups say millions of people have been mis-sold PPI in recent years.

The FSA has been carrying out a high-profile campaign of policing the industry, penalising 19 firms and handing out hefty fines.

The Competition Commission published proposals to tighten up the industry in November.

It said that in 2006, of the 3.5bn of the insurance sold by 12 largest sellers, 1.4bn was "excess profit" for the banks and institutions that sold the policies.

The Commission is proposing that there is a 14-day cooling off period before the provider of the loan can sell PPI to that customer after identifying the timing of sales as an issue of concern.

A range of other proposals included a ban on policies that added the cost of PPI to the total debt, and an annual statement to allow people to review their policies and switch if they thought they could get a better deal elsewhere.



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SEE ALSO
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Loan insurance 'delay' proposed
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10 Oct 08 |  Business
Record fine for PPI mis-selling
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Crackdown on mis-selling of PPI
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PPI sales face new restrictions
10 Sep 08 |  Business
PPI still mis-sold, says Which?
09 Sep 08 |  Business
Loan insurance 'costing too much'
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