Millions To Share £1.3bn Bank Compensation

Regulators have confirmed a compensation fund of £1.3bn for up to seven million victims of another insurance mis-selling scandal.

The announcement, which was made 12 hours after Sky News was handed details of the Financial Conduct Authority's agreement with banks , outlined how Card Protection Plan Limited (CPP) and 13 high street banks and credit card issuers would pay.

The FCA said the mis-selling centred on CPP's Card Protection and Identity Protection policies between 2005 and 2011 - with many people not even needing the cover.

York-based CPP - which has already been fined £10.5m for its behaviour - was brought to the brink of bankruptcy by the case but secured a new £36m financing deal with its lenders last month to assure its future.

The FCA said today: "Customers were given misleading and unclear information about the policies so that they bought cover that either was not needed, or to cover risks that had been greatly exaggerated.

"As well as CPP selling directly to customers, high street banks and credit card issuers introduced millions of customers to CPP," the regulator said.

It named those institutions as Bank of Scotland, Barclays, Canada Square Operations (formerly Egg), Capital One, Clydesdale, Home Retail Group Insurance Services, HSBC, MBNA, Morgan Stanley, Nationwide Building Society, Santander UK, The Royal Bank of Scotland and Tesco Personal Finance.

The scandal - while already in the public domain - marks another round of compensation by banks for their past behaviour in the wake of the mis-selling of Payment Protection Insurance (PPI) which may eventually cost UK banks a total of £20bn.

This means redress itself is not expected to be paid out until Spring 2014. The time between now and then will be spent seeking Court approval of the Scheme and ensuring CPP customers' voices are heard.

Martin Wheatley, chief executive of the FCA, commented: "We have been encouraged that, working closely with the FCA and despite their different business needs, a large number of firms have voluntarily come together to create a redress scheme that will provide a fair outcome for customers.

"This kind of collaborative and responsible approach is a good example of how firms are taking more responsibility and helping - step by step - to rebuild trust.

"We believe this will be a good outcome for customers who may have been mis-sold the card and identity protection policies.

"Subject to CPP's customers approving the scheme, these policy holders will be able to claim a full refund of premiums with interest."

The FCA added that if the scheme were approved, it could start making payments to victims from spring 2014.

A CPP spokesperson added: "Our priority is to achieve the best outcome for customers affected by these historic issues and ensure customers receive a fair and high quality end-to-end service."

Shares in the company plunged more than 20% today at one stage as investors balked at the cost of the redress scheme.