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[LONDON] Around two million Britons who may have been mis-sold insurance to cover events such as credit card fraud will be asked to vote for a scheme that could cost top high street banks hundreds of millions of pounds in compensation.
The scheme, which affects security products on credit and debit cards over an eight-year period, comes after banks have already set aside more than 24 billion pounds (US$36 billion) to compensate customers mis-sold loan and mortgage insurance.
The Financial Conduct Authority (FCA) said on Tuesday 11 lenders and card issuers had voluntarily agreed to compensate customers after "collaborative discussions". They include Barclays, HSBC, Lloyds, RBS and Affinion, a company which aims to improve customer loyalty.
The total amount of compensation will depend on how many eligible customers pursue a claim after buying or renewing products such as Sentinel, Safe and Secure Plus and Card Protection between Jan 14, 2005 and August 2013.
The average annual cost of such products, whose features included insurance to cover fraudulent use if a card was lost or stolen, was 25 pounds (US$38). This could put the final compensation bill at around 400 million pounds.
Cover for fraudulent use, however, is unnecessary because card issuers are typically responsible for transactions after cards are reported lost or stolen. Before such a report, customers are only liable for unauthorised purchases in limited circumstances, the FCA noted.
Eligible customers will be contacted by May and asked to vote in favour of the scheme, which will also have to be formally approved by the High Court. If enough customers vote for it, compensation could be paid later this year.
The scheme is similar to a deal in which around 2.4 million customers were able to claim 450 million pounds after being sold unnecessary card or identity protection through a company called CPP last year, without the FCA resorting to enforcement action.
However, some consumer groups have said that scheme was a failure because the redress door was slammed shut too early.
Tracey McDermott, the FCA's new supervision head, said the industry's willingness to voluntarily try and resolve historic problems was a step towards helping restore trust in financial services.