From January 2005 to April 2006, Capital One failed to ensure that 50,000 customers received important information about the policy including all exclusions although they did receive a policy summary. Affected customers were unable to check what they were covered for or if the policy was right for them.
Capital One's main business is providing credit cards, loans, and savings accounts from its operations centre in Nottingham, East Midlands. It also sells PPI on a non-advised basis to its credit card and loan customers over the telephone, internet or during the card application process. The FSA's investigation focussed purely on credit card PPI sales. During 2005 Capital One sold approximately 335,000 UK credit card PPI policies.
Capital One has been proactive in carrying out a full remedial programme which addressed the systems and controls issues. One part of the remedial programme ensured that those customers who did not receive the policy document had the opportunity to be compensated. The cost of this part of the programme, including potential premium refunds and settled claims, is estimated at around £3m, of which £1.1m related to customers after general insurance regulation started in January 2005.
FSA Director of Enforcement Margaret Cole said:
"We are determined to see much better practice in PPI. This fine and other recent PPI-related enforcement cases show we will crack down where firms fail to treat their customers fairly in this area. It is unacceptable for people to be put at risk of buying unsuitable protection insurance through not being given the right information at the right time. And consumers should also remember that PPI on credit cards and loans is almost always optional and consider whether they need it before signing up."
This fine follows two phases of FSA work looking into PPI and the way it is sold. A third phase is underway and by the end of June 2007, the FSA will have visited over 200 PPI firms in two years. To help consumers make informed decisions, the FSA's consumer website www.moneymadeclear.fsa.gov.uk includes questions that people should ask themselves before taking out PPI.
The FSA found that as a result of its inadequate systems and controls:
· Capital One failed to send a policy document to more than 50,000 PPI customers between January 2005 and April 2006, although they did receive a policy summary;
· two out of four script options used by its sales associates did not ask the customer for consent explicitly to receive only limited information over the telephone;
· the scripts did not ensure adequate disclosure in enough cases of policy features and benefits and policy exclusions and limitations;
· Capital One failed to provide customers who purchased PPI other than by telephone with the policy document prior to the conclusion of the contract; and
· its compliance monitoring of telephone sales of PPI was not sufficiently effective.
The firm's failure to provide customers with a policy document at the right time meant that affected customers did not have the opportunity to consider all aspects of the PPI policy, and whether it may have met their demands and needs, prior to conclusion of the contract.
By agreeing to settle at an early stage Capital One has qualified for a 30% discount under the FSA's executive settlement procedures – without the discount the fine would have been £250,000. Capital One proactively, and without prompting by the FSA, engaged in a substantial programme, committing itself to remedial action and appropriate redress. Without this, the financial penalty would have been substantially higher.
