Internet bank Egg faces a £17m compensation payout after it was found to have serious failings in its sales of credit card payment protection insurance (PPI).
The firm, also fined £721,000 by the FSA, says it will contact every customer to whom it sold the insurance and has calculated a £1.67m payout for every 10% eligible for compensation. The regulator, however, says it is unlikely every customer will qualify for a payout.
Egg sold more than 106,000 credit card PPI policies at an average cost of £156 between January 2005 and December 2007 and was found to have failings in about 40% of them.
The FSA says it sold PPI either when receiving a customer services call or when making a sales call and, when customers refused the insurance, encouraged its sales staff to use techniques to persuade the customer to take the insurance - called 'objection handling'.
"Egg used inappropriate sales techniques to try to persuade customers to buy PPI on their credit card even when they asserted they did not want the cover," FSA director of enforcement Margaret Cole says.
"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.
"It is unacceptable that Egg did not identify the problems with its sales processes despite a series of high profile FSA communications on PPI, including earlier fines on other firms."
Egg stopped telephone sales of credit card PPI in December 2007, and has agreed to write to customers and pay a full refund plus interest where appropriate. Egg is likely to pay substantial compensation as a result of this exercise."
The FSA says Egg qualified for a 30% discount on the fine by agreeing to settle at an early stage, meaning it avoided a potential fine of more than £1m.
Contact: Scott Sinclair, News Editor, 020 7484 9791 - [email protected]IFAonline
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