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While an agreement has been reached with the FCA on the nature of the proposed compensation scheme (the "Scheme"), it must be voted on by eligible customers (who are the Scheme’s creditors) and formally approved by the High Court before compensation can be paid. A majority of customers who vote will need to do so in favour of the Scheme for this to happen. This means compensation is expected to be paid later this year.

The Scheme is being proposed following collaborative discussions between the FCA, Affinion and the banks and credit card issuers, about how to resolve these issues.

Tracey McDermott, director of supervision and authorisations at the FCA, commented:

“If approved, this Scheme will provide those who may have concerns about the way their card security product was sold to them with a simple and free way to claim compensation.

“We have been encouraged that, working closely with the FCA, a large number of firms have voluntarily come together to create a redress scheme that will provide a fair outcome for customers. Such a willingness to take steps to resolve historic problems is an important step to restoring trust in the financial services.

“I would encourage anyone who receives a letter from “AI Scheme Limited” in April or May 2015 to vote for the Scheme. The Scheme will provide access to a dedicated helpline and a website, which customers should use if they have questions or need assistance.”

Approximately two million customers will receive an initial letter from a company called “AI Scheme Limited” giving more information about the process. AI Scheme Ltd has been set up to promote and deliver the Scheme.

The total amount of compensation paid out will depend on how many eligible customers decide that they wish to claim compensation and the length of time they held the product. The average annual cost of the card security product was £25.

One of the features of the card security products was insurance to cover fraudulent use if a card was lost or stolen. This was unnecessary because the customer’s card issuer was typically responsible for any transactions after the cards were reported as being lost or stolen and, in the period before reporting the matter, customers were only liable for unauthorised transactions in limited circumstances. The bank or card issuer usually covered customers for anything over the first £50 if transactions took place before the card was reported missing.

The FCA has not conducted a formal investigation in this matter. Affinion and the following high street banks and credit card issuers have voluntarily agreed to be part of the Scheme and will provide the money needed to fund compensation payments:

AIB Group (UK) Plc trading as First Trust Bank in Northern Ireland and Allied Irish Bank (GB) in Great Britain
Barclays Bank Plc
Capital One (Europe) Plc
Clydesdale Bank PLC
HSBC Bank Plc
Lloyds Bank Plc
Northern Bank Limited trading as Danske Bank
Santander UK Plc
Tesco Personal Finance plc
The Co-operative Bank Plc
The Royal Bank of Scotland Plc