The Financial Services Authority (FSA) has issued its joint largest retail fine of £10.5m to Card Protection Plan Limited (CPP) for mis-selling insurance products.
CPP has also agreed to pay redress and estimates that around £14.5m will need to be paid to affected customers.
The firm has estimated that the total costs of the FSA's investigation will be £33.4m which includes the fine, redress and the costs associated with the investigation.
The FSA found widespread mis-selling of CPP's two main UK products between January 2005 and March 2011. CPP failed to treat its customers fairly and did not provide clear information to its customers.
It sold its Card Protection product by emphasising that customers would benefit from up to £100,000 worth of insurance cover - when this was not needed because customers were already covered by their banks.
The firm also overstated the risks and consequences of identity theft during sales of its Identity Protection product.
CPP sold Card Protection and Identity Protection through its own sales channels, or through a partner, such as a high street bank, which introduced its customers to CPP.
Card Protection cost about £35 a year while Identity Protection cost about £84 a year. In total, CPP sold 4.4 million policies and generated £354.5m in gross profit.
The FSA has required CPP to appoint an external "skilled person" to monitor and report on its claims and complaints handling.
The FSA found that CPP's sales process focused on sales, revenue and commercial objectives at the expense of treating customers fairly. The FSA's investigation revealed that:
• CPP sales agents were encouraged to be overly persistent in persuading potential customers to purchase the products even after they had made it clear that they did not wish to buy them;
• CPP gave its sales agents targets for successfully dissuading customers who contacted CPP to cancel their policies;
• CPP did not prevent sales agents telling customers to buy the products on the basis that customers could cancel them during the cooling-off period; and
• CPP renewed and took payments from customers without reminding them when it did not have current addresses and could not send renewal documentation.
Tracey McDermott, the FSA's director of enforcement and financial crime, said:"This is a serious case, one that has warranted our joint largest retail conduct fine and generated a sizeable bill for consumer redress."
CPP agreed to settle at an early stage entitling it to a 30% discount on its fine. Without the discount, the fine would have been £15 million.
