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FSA/PN/022/2007
15 February 2007

The Financial Services Authority has today fined Capital One Bank (Europe) Plc (Capital One) £175,000 for failing to have adequate systems and controls for selling Payment Protection Insurance (PPI) insurance and for failing to treat its customers fairly.

From January 2005 to April 2006, Capital One failed to ensure that 50,000 customers received important information about the policy including all exclusions although they did receive a policy summary. Affected customers were unable to check what they were covered for or if the policy was right for them.

Capital One's main business is providing credit cards, loans, and savings accounts from its operations centre in Nottingham, East Midlands. It also sells PPI on a non-advised basis to its credit card and loan customers over the telephone, internet or during the card application process. The FSA's investigation focussed purely on credit card PPI sales. During 2005 Capital One sold approximately 335,000 UK credit card PPI policies.

Capital One has been proactive in carrying out a full remedial programme which addressed the systems and controls issues. One part of the remedial programme ensured that those customers who did not receive the policy document had the opportunity to be compensated. The cost of this part of the programme, including potential premium refunds and settled claims, is estimated at around £3m, of which £1.1m related to customers after general insurance regulation started in January 2005.

FSA Director of Enforcement Margaret Cole said:

"We are determined to see much better practice in PPI. This fine and other recent PPI-related enforcement cases show we will crack down where firms fail to treat their customers fairly in this area. It is unacceptable for people to be put at risk of buying unsuitable protection insurance through not being given the right information at the right time. And consumers should also remember that PPI on credit cards and loans is almost always optional and consider whether they need it before signing up."

This fine follows two phases of FSA work looking into PPI and the way it is sold. A third phase is underway and by the end of June 2007, the FSA will have visited over 200 PPI firms in two years. To help consumers make informed decisions, the FSA's consumer website includes questions that people should ask themselves before taking out PPI.

The FSA found that as a result of its inadequate systems and controls:

• Capital One failed to send a policy document to more than 50,000 PPI customers between January 2005 and April 2006, although they did receive a policy summary;
• two out of four script options used by its sales associates did not ask the customer for consent explicitly to receive only limited information over the telephone;
• the scripts did not ensure adequate disclosure in enough cases of policy features and benefits and policy exclusions and limitations;
• Capital One failed to provide customers who purchased PPI other than by telephone with the policy document prior to the conclusion of the contract; and
• its compliance monitoring of telephone sales of PPI was not sufficiently effective.

The firm's failure to provide customers with a policy document at the right time meant that affected customers did not have the opportunity to consider all aspects of the PPI policy, and whether it may have met their demands and needs, prior to conclusion of the contract.

By agreeing to settle at an early stage Capital One has qualified for a 30% discount under the FSA's executive settlement procedures – without the discount the fine would have been £250,000. Capital One proactively, and without prompting by the FSA, engaged in a substantial programme, committing itself to remedial action and appropriate redress. Without this, the financial penalty would have been substantially higher.

Notes for editors

1. The full text of the Final Notice dated 15 February 2007, is available on the FSA website. This includes the background to the case, the relevant statutory provisions and the regulatory requirements contravened and the factors taken into account when settling the level of the fine.

2. Capital One has been regulated by the FSA since 1 December 2001, but in relation to its insurance mediation activities, only since 14 January 2005. It is an authorised person under the Financial Services and Markets Act with permissions to carry out a range of regulated activities.

3. Capital One's failings came to light during a thematic visit by the FSA to the firm in 2005 after which it was referred to Enforcement.

4. Capital One was in breach of the FSA's Principles for Businesses 3 and 6:

   • Principle 3: A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

   • Principle 6: A firm must pay due regard to the interests of its customers and treat them fairly.

5. Results of the FSA's follow-up thematic work on the sale of PPI published in October 2006 found that some firms selling this insurance were still failing to treat their customers fairly. Findings showed that many firms were still not giving customers clear information during the sales conversation; customers were still not being made fully aware that there may be parts of the policy under which they cannot claim; and where customers are sold single premium policies, this was not always done with the best interests of the customer in mind. More details can be found in FSA Press Notice 03/2007.

6. The FSA has previously fined four firms over poor PPI selling practices - Regency (PN 88/ 2006), Loans.co.uk (PN 105/2006), Redcats (PN136/2006) and GE Capital Bank (PN/015/2007) and has imposed a public censure on Eastern Western Motor Group (PN 137/2006). Two other cases have recently been concluded where problems relating to PPI also featured - Capital Mortgage Connections (PN 119/2006) and Home and County Mortgages (PN 132/2006). Other PPI enforcement investigations are underway.

7. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

8. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.