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FSA/PN/149/2008
10 December 2008

The Financial Services Authority (FSA) has fined Egg Banking plc £721,000 for serious failings in its sales of credit card payment protection insurance (PPI).

The FSA found failings in approximately 40 per cent of telephone sales of credit card PPI made by Egg between January 2005 and December 2007. Egg sold PPI either when receiving a customer services call, or when making a sales call to a new customer. When Egg customers said they did not want PPI on their credit cards, the firm directed its sales staff to use techniques to persuade the customer to take the insurance - called 'objection handling'.

These techniques included over-emphasising the positive features of the PPI, or telling the customer they could take the PPI for a free period and cancel it later if they did not want it. In some cases, even when the customer did not consent, PPI was applied to their credit card anyway.

In addition, in a significant number of cases Egg failed to obtain clear consent from customers to receive only limited information about the PPI during the telephone sale. Egg will write to customers asking them to call a dedicated number if they have any concerns about the policy or the way it was sold to them and compensate them where appropriate - by way of illustration, Egg is expected to pay £1.67 million for every 10% of customers who receive a refund.

FSA Director of Enforcement Margaret Cole said:

"Egg used inappropriate sales techniques to try to persuade customers to buy payment protection insurance on their credit card even when they asserted they did not want the cover. All firms must ensure that customers are treated fairly when selling PPI and if a customer does not want PPI, they should not be pressured into taking it.

"We will continue to fine firms where we find PPI failings. It is unacceptable that Egg did not identify the problems with its sales processes despite a series of high profile FSA communications on PPI, including earlier fines on other firms. Egg stopped telephone sales of credit card PPI in December 2007, and has agreed to write to customers and pay a full refund plus interest where appropriate. Egg is likely to pay substantial compensation as a result of this exercise."

The FSA has taken into account Egg's customer contact exercise and commitment to compensate customers where appropriate and has significantly reduced the level of penalty which it would otherwise have imposed on the firm. Egg also qualified for a 30 per cent discount under the FSA's executive settlement procedures by agreeing to settle at an early stage of the investigation. Without this discount the fine would have been £1.03 million.

Notes to editors

1. Egg Banking plc is an online bank based in Derby, which was acquired by Citibank NA on 1 May 2007. The Final Notice for the firm includes the background to the case, the regulatory requirements contravened and the factors taken into account when settling the level of the fine. The Final Notice also contains the agreed forms of letter to be used in Egg's customer contact exercise.
2. Egg sold over 106,000 credit card PPI policies at an average cost of £156. Egg sold PPI on a 'non-advised' basis which means that the firm should provide information about the PPI on offer, but should not recommend the policy as suitable for particular customers.
3. The FSA has previously taken action against 19 firms over poor PPI selling practices. The FSA's thematic work on the sale of PPI published in September 2007 found improvements in some areas, but also that many firms selling this insurance were still failing to treat their customers fairly.  The FSA introduced additional rules in its Insurance Conduct of Business Rulebook in January 2008 designed to improve PPI selling practices. 
4. At the end of September 2008, FSA published an update on its review of the sale of PPI. The update outlined the high-level findings from FSA's mystery shopping programme and the next steps. In light of the findings, the FSA announced its escalation of regulatory intervention. The FSA is considering the appropriate action to deal with ongoing non-compliant sales practices and non-compliant past sales.
5. To help consumers make informed decisions, the FSA's consumer pages - Moneymadeclear - include questions that people should ask themselves before taking out PPI and a new comparative information table for PPI.
6. 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.
7. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.