The Financial Conduct Authority (FCA) has imposed a fine of £1,976,000 on a credit card provider that failed to fully disclose the costs of an add-on product.
Furthermore, the firm has also been instructed to pay a massive £168,781,000 in compensation to the 1.2 million affected customers. This figure reflects the total amount of the charges that were not disclosed.
The add-on product, known as a Repayment Option Plan (ROP), allowed customers benefits such as: the opportunity to freeze their credit card account, take a payment holiday for one month each year, avoid late fees for one month per year, and receive SMS alerts relevant to their account.
Whilst the firm correctly informed ROP customers that there was a monthly charge for this service, it neglected to tell them that the plan could attract interest of up to 79.9%, which would be compounded if the customer failed to pay off their card in full at the end of the month. In an FCA review, the regulator found that the firm did not provide this important information in 100% of cases.
The problems lasted all the way from June 2003 to April 2016, when sales of the ROP were suspended at the request of the FCA. From June 2003 to April 2014, consumer credit was not regulated by the FCA, so the firm will be voluntarily refunding the charges imposed on its customers during this period.
The FCA believes that the firm’s actions breached two of its Principles for Business: Principle 6 (Customers’ interests, otherwise known as Treating Customers Fairly) and Principle 7 (Communications with clients).
Affected customers will be contacted by the firm and do not need to do anything to receive their compensation.
It is likely that the firm will resume sales of the ROP in due course.
Mark Steward, Director of Enforcement and Market Oversight at the FCA, said:
“[The firm] failed to make sure customers were informed about the full cost of the ROP when it was offered to customers. Most [The firm] customers chose the ROP to help manage their credit without realising instead that the product might lead to their indebtedness increasing. Customers are entitled to be told all relevant information when being offered financial products. These were very serious breaches.
“[The firm] has decided now to do the right thing by acknowledging the wrong-doing and offering to compensate its customers. We are pleased the firm has extended the compensation to customers who purchased the ROP before we took responsibility for regulating the consumer credit market.”
A spokesperson for the firm said:
“The FCA believes that [we] should have been more explicit when discussing ROP over the phone, that the product was a purchase transaction, and as such would attract interest in the event the customer didn’t pay their bill in full.
“We recognise that this call could have been clearer and apologise to all impacted customers where we fell short of the high standards that we set ourselves.
“As a result the FCA and [ourselves] agreed that [we] will refund interest charges that customers have paid on ROP. [We have] also been fined just under £2 million. Our aim now is to put things right as quickly as we can by refunding the interest element of ROP to customers.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.