Avoid useless ID theft insurance - credit card cover is free

The most depressing aspect of the Financial Services Authority’s investigation into the sale of identity theft insurance is the statement from Card Protection Plan (CPP) that it planned to redesign the product so that it no longer included insurance and that it hopes to start selling the new version within six weeks. 

On Monday, the firm said it had suspended all sales of its identity theft product after the watchdog started to investigate ‘alleged failings in sales calls with customers.’

The only reason the FSA has powers to investigate CPP is that its identity theft product includes insurance. Once the insurance element is removed it will be free to sell to hundreds of thousands more people persuading them to buy unnecessary protection.  CPP has more than 10 million policyholders in 15 different countries

‘ID theft insurance is a product that most people will never use yet hundreds of thousands of policies have been sold, which raises serious questions about the sales practices being employed,’ says Peter Vicary-Smith, chief executive of Which? the consumer organisation. 

And he is absolutely right.  With over 55.6 million credit cards in issue according to the UK Cards Association, 7.4 million charge cards and a massive 84.6 million debit cards, the chances of you being one of the 100,000 cases of identity theft are small.  According to CPP’s own figures only 0.5% of its customers who buy identity theft protection ever claim on their policy.  Losses on identity theft totalled just £38.1 million in 2010 out of total transactions on credit and debit cards worth £8.5 billion.

Hard sell

‘We wrote to the FSA last year asking it to investigate ID theft insurance sales after several of our members contacted us with concerns about how it was sold to them, so it’s good to see action being taken,’ says Vicary-Smith. 

Last autumn BBC’s Moneybox programme investigated complaints about hard-sell identity theft protection practices by CPP and found that bank customers were put through to CPP when they rang to activate their new or replacement credit card and were persuaded to take out cover.

Several of the banks had arrangements with CPP to sell ID protection including Barclays, Barclaycard, NatWest/RBS and Yorkshire Bank.  Money Box also heard from a Santander and a NatWest customer who said they were signed up for ID theft protection insurance from CPP - when they clearly said they did not want it.  As well as CPP, other standalone ID theft insurance providers include PrivacyGuard, Experian and Sentinel.  And it’s not cheap.  CPP’s Card Protection costs £35 a year while Experian’s cover starts at £6.99 a month.

‘If you think you’ve been mis-sold to, you can complain to your provider, cancel your policy and ask for a refund,’ says Vicary-Smith.   ‘If they refuse you can take your complaint to the Financial Ombudsman.’ 

Free ID protection

And you don’t need these policies because there is existing protection for free.  ‘Your credit card covers identity theft when somebody has taken out a card in your name or has fraudulently obtained your card details,’ points out Jemma Smith of the UK Card Association.   In addition, under Banking Conduct of Business Rules and the Lending Code, banks must reimburse victims of fraud on debit cards, bank accounts, personal loans etc unless they can prove that the consumer has acted fraudulently or been negligent.

‘If the fraudster has done something like taken out a personal loan or mortgage in your name, you don’t have any relationship with the company and although it can be messy to sort out, you are not liable,’ says Smith. 

The banks have a lot to answer for.  Although a fraudster can get hold of a person’s details to apply for a credit card or personal loan, there is no way they can get hold of the fraudulent card unless the card is sent to an address which is not the person’s real address.  The credit card companies and the banks are too willing to send out these cards, even when the address is different from the person’s last known address.

If you believe you have been, or could be, a victim of identity theft or card fraud a CIFAS Protective Registration can be placed against your name and address.  You may have lost your handbag or wallet or had it stolen.  If the thief tries to use your identity by, for example, applying for a card in your name but at a different address, this will immediately be flagged up to the card issuing company.  A CIFAS Protective Registration warning on an address indicates to these organisations that they may need to carry out additional checks and costs £12 a year plus VAT.