Credit Card Compensation Scheme Announced

Up to two million holders of a credit card insurance product could secure compensation.

The City regulator made the announcement following discussions with 11 card issuers, including major banks, and the insurance provider Affinion but it stopped short of any enforcement action.

The Financial Conduct Authority (FCA) said it had reached agreement on a compensation scheme after card customers were sold security products costing up to £25 annually to cover fraudulent use in the event of a card being lost or stolen.

The FCA said some elements of the packages - sold between 4 January 2005 and August 2013 - were unnecessary because of the card issuer's existing obligations to protect holders.

The banks and credit card issuers taking part in the scheme were AIB Group, Barclays (LSE: BARC.L - news) , Capital One, Clydesdale Bank, HSBC, Lloyds Bank, Northern Bank, Santander, Tesco Personal Finance, the Co-operative Bank and the Royal Bank of Scotland (LSE: RBS.L - news) .

The products in question carried the names of either card protection, sentinel, sentinel gold, sentinel protection, sentinel excel and safe and secure plus.

The banks and credit card issuers either sold Affinion's security products directly or introduced customers to them.

The FCA said Affinion and the other firms are taking part in the scheme "without any admission of liability of any description on their part."

The regulator advised people to watch out for a letter from a company called "AI Scheme Limited" in around April or May, which will include an invitation to vote for or against the scheme.

It added that consumers could secure payouts later this year, subject to its agreement with the card providers being supported through a majority vote.

The amount of compensation would depend on how much they paid for the policy less tax and any money paid out, but 8% interest would be added.

Tracey McDermott, director of supervision and authorisations at the FCA, said: "If approved, this scheme will provide those who may have concerns about the way their card security product was sold to them with a simple and free way to claim compensation."

"I would encourage anyone who receives a letter from AI Scheme Limited in April or May 2015 to vote for the scheme."