According to the BBC, 13 banks and credit card firms – including Barclays, Royal Bank of Scotland and HSBC Holdings – agreed on Thursday to reimburse their customers for the widely mis-sold policies, with the average payout likely to be around $290 a person.
The banks also pledged to pay to advertise the compensation scheme in national newspapers, putting an end to a banking scheme that was in place from January 2005 to March 2011.
During that period, customers from the 13 banks had been issued stickers, prompting them to call a number in order to activate their new credit cards. However, the stated number was actually for insurance provider CPP Group, who would persuade unsuspecting customers into purchasing identify theft insurance – at around $125 a year – or credit card fraud protection – at $47 a year.
What CPP did not inform customers was that the insurance was not necessary as customers would have already been covered by their banks.
Additionally, the FCA ruled that CPP had greatly exaggerated the risks and consequences of ID theft, in order to convince customers into taking up their policies.
"ID theft insurance and card protection policies are poor value for money and many consumers were misled about the benefits,” said Richard Lloyd, executive director of the consumer watchdog Which?.
CPP was already fined $16.5 million last year for selling customers said insurance. The FCA said that the 13 banks were also liable to pay compensation, as they were the ones who introduced their customers to CPP's products, in order to receive up to 60 percent in commissions.
"We have been encouraged that, despite their different business needs, a large number of firms have voluntarily come together to create a redress scheme that will provide a fair outcome for customers," said FCA chief executive, Martin Wheatley.
Hamish Ogston, founder and major shareholder of CPP, however appeared less welcoming of the ruling. Speaking to PA News, Ogston described the £1.3 billion ($2.04 billion) figure as “b******s” and “ridiculous” as there had never been a redress scheme that paid out 100 percent.
Paul Maddox, managing director for customer service at Barclays however admitted: "Whilst for many people these products were entirely valid and provided benefits, some sales practices regarding past identity fraud and card protection policies were below acceptable standards, and were not in the interests of our customers."