LONDON - British financial regulators struck a deal Thursday to give consumers as much as 1.3 billion pounds ($2 billion) in compensation after they were improperly sold credit card insurance.
The Financial Conduct Authority reached an agreement with Card Protection Plan Ltd and 13 banks and credit card issuers to repay some 7 million customers for insurance policies that offered coverage already provided by the banks or for overstating the risks of identity theft.
The authority fined CPP 10.5 million pounds last year for selling consumers insurance they didn't need or to cover risks that were greatly exaggerated. But the authority said it was encouraging that a deal could be reached to get customers their money back with interest.
"We believe this will be a good outcome for customers who may have been mis-sold the card and identity protection policies," said Martin Wheatley, chief executive of the FCA.
The deal must still be approved by Britain's High Court. CPP's customers will also be allowed to vote to make sure a majority approve of the settlement. Funds are not expected to be paid out until next year.
"Subject to CPP's customers approving the scheme, these policy holders will be able to claim a full refund of premiums with interest," Wheatley said.
The authority says customers will soon receive letters on the process. The redress per customer will depend on the type of policy they owned and how long it was held.
The scandal comes as another blow to banks, which have already been hit with fines for wrongly selling payment protection insurance. Those involved in Thursday's deal include Bank of Scotland (part of Lloyds Banking Group); Barclays, HSBC, Santander and Royal Bank of Scotland.
The authority said that banks and credit card issuers were involved because "they introduced customers to CPP's products and so must share responsibility for putting things right."