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Updated: CPP chief looks ahead to firm's future
8:50am Friday 23rd August 2013 in Business news
TROUBLED York credit card protection firm CPP is to join 13 high street banks in paying £1.3 billion compensation over its infamous mis-selling scandal.
The Holgate-based firm, which employs 600 people in the city after making around 100 redundancies earlier this year, was fined a record £10.5 million in November by the Financial Conduct Authority (FCA) for mis-selling insurance products to millions of people.
Yesterday, the new regulator revealed a redress scheme in which banks and financial institutions, along with CPP, will pay compensation to as many as seven million people in the UK who were sold policies between 2005 and 2011.
The FCA said: “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.”
Bosses at CPP said a £36 million refinancing of the firm, secured on July 31, coupled with a cost-reduction programme and the sale of its North American business, will provide the money needed to pay redress.
The cost-reduction programme has seen what directors have described as about 100 “regrettable” redundancies in York this year, which, along with group cuts, equates to £9 million savings each year, with CPP chief executive officer Paul Stobart and chief financial officer Shaun Parker also due to step down.
Speaking to The Press, Mr Stobart said: “In the first half of this year we have done a lot of the repair work that we needed to do to build a platform for future development. We secured a crucially important financing deal which will fund our three-year business plan and redress programme. Sadly and regrettably we had to reduce the number of people at all levels of the organisation. Just over 100 people were made redundant in York.
“However, due to that regrettable reduction programme we have been able to sustain the 600 jobs left.
“The job we now have to do is go out to our business partners around the world and say we are back in business and we have financial stability.”
Mr Stobart said he was “very happy” with the redress scheme announced which will see CPP pay £14.5 million compensation for the 300,000 policies it sold directly without the help of other banks or companies.
He described the agreed payment method, which took about a year to put in place, as “a very appropriate way to deal with a very long and complex programme relating to historic issues which are really getting very old.”
Yesterday also saw CPP release its half-year results which revealed a £3.5 million loss in the six months to June 30 compared with a £14 million profit for the same period last year.
Following a collapsed buy-out deal in June, when the firm’s founder Hamish Ogston offered £1.7 million to buy the company, the business has revealed renewal rates have dropped to 71.3 per cent from 73.5 per cent at the year end and its live policy base has reduced from 10.1 million to 7.9 million.
However financial chiefs say they are “optimistic” for the future of the firm, which has been secured short-term by a two-part refinance package.
Mr Parker told The Press: “We are seeing the savings on a month-by- month basis. They don’t show in our first six-month figures as the programme was being implemented during that period. The refinance has secured our short-term future. It has two components. The first is the extension of normal lending from our banks Barclays, RBS and Santander, which equates to £13 million.
“We have also refinanced £23 million through an innovative financial arrangement with our business partners, which sees the suspension of the commission we pay them.
“What we will do is we will get the redress behind us and start rebuilding the business. Then, armed with a growing business and a good business plan we intend to refinance within the next three years.
“There are challenges and lots of hard work to be done but we are optimistic that we will be able to take the actions needed and get the business moving again.”
Before any money is paid, customers and the High Court must first approve the redress scheme.
The banks and credit card issuers set to join CPP in the redress scheme are Bank of Scotland, Barclays, Canada Square Operations, Capital One (Europe), Clydesdale Bank, Home Retail Group Insurance Services, HSBC, MBNA, Morgan Stanley, Nationwide Building Society, Santander UK, The Royal Bank of Scotland and Tesco Personal Finance.
Seven million in line for compensation
ONCE customers and the High Court have approved the redress policy around seven million victims of mis-selling will be in line for compensation.
From Thursday next week, CPP is due to send letters to customers affected, detailing how to make a claim. However, the Financial Conduct Authority has said the first compensation payments aren’t likely to be made until next spring.
Many customers of the CPP Group were a sold a £30-a- year card protection service, designed to cover losses if a card was lost or stolen.
They were told they would benefit from up to £100,000 of insurance cover. However they were unknowingly already covered by their banks. Other customers had been sold an £80 a year insurance designed to cover costs associated with identity theft.
Compensation payouts could run into hundreds of pounts, although exactly how much each customer will receive is dependant on what products they bought and for how many years. Victims will also receive eight per cent interest.
After policy holders have received their initial letter from CPP, they will be invited as the scheme’s “creditors” to vote on whether they want the redress scheme to go ahead.
If a favourable vote is recorded the High Court will be asked to approve it.
Then, if the scheme gets the green light, CPP will write to policyholders again to ask whether they want to be considered for compensation.
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