GE Capital fined £610,000 in crackdown on card insurance

GE Capital fined £610,000 in crackdown on card insurance

The chief City watchdog yesterday stepped up its campaign against the mis-selling of payment protection insurance, fining store card provider GE Capital Bank £610,000 for its failure to monitor how hundreds of thousands of policies were sold.

The Financial Services Authority said the firm, a subsidiary of US conglomerate General Electric, had failed to put in adequate systems and controls to protect the public from potential mis-selling. Customers who took out store cards or credit cards backed by GE Capital were not treated fairly, said the regulator.

Allegations that banks, insurers and leasing companies have mis-sold payment protection insurance have been described as one of the biggest retail financial scandals of recent years. Insurers and banks are reckoned to have reaped hundreds of millions of pounds in profits from sales of the products that a recent Office of Fair Trading investigation warned were a rip-off and often mis-sold.

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Policyholders can make a claim to cover payments on loans, credit cards and store cards if they are unable to work owing to illness or injury or they lose their job.

The disciplinary action coincides with a publicity campaign starting next month that will aim to help people make "informed decisions" when they are offered the cover. GE Capital is one of four firms expected to be fined or penalised in some way as part of the crackdown. Since September, the FSA has fined three other firms for breaking the rules on the sale of the insurance - mainly niche lenders such as mortgage company Regency Mortgage Corporation, which was fined £56,000.

High street banks, which account for the bulk of sales, are expected to escape censure by the FSA because they will be able to show they complied with sales standards and record keeping rules. However, they still face an investigation by the Competition Commission and consumer groups believe this will confirm allegations of widespread profiteering and mis-selling.

A typical protection policy from a bank adds £7,000 to the cost of a £20,000 loan. Banks are allowed to add the cost of the policy to the loan and calculate the monthly interest on the total.

About 300,000 retail assistants at GE Capital affiliates were permitted to sell the insurance. The FSA said that in 2005 alone more than 850,000 payment protection policies were sold on its behalf.

A spokesman for GE Capital said the company was committed to taking remedial action and would pay compensation where appropriate. "It's obviously not a situation we were happy about. But the premium for store cards was usually £9 a year and it covered more than just PPI. Most customers said they were happy and renewed the product."

Guardian Unlimited © Guardian News and Media Limited 2006