Egg Fined by FSA

Egg, the Internet bank, has been fined £721K by the FSA for serious failings in the way it sold payment protection insurance (PPI) to its credit card customers. The FSA has also ordered it to pay compensation, which could cost £10M.

The FSA found that Egg had instructed sales staff to use hard-sell techniques on those who proved reluctant buyers.

These included over-emphasising the benefits of the cover, or telling customers they could take it out for free for a limited period and then cancel. The Guardian notes that Egg, in some cases, applied the cover to a customer's credit card even when they had not agreed to buy it.

Is it any wonder people despise the banks?

PPI misselling ranks with the misselling of endowment mortgages and personal pensions as one of the major financial scandals of the last 20 years. The bottom line being that PPI is overpriced and in many cases when a claim is made useless, as the insurers do their best to wriggle out of their obligations.

The FSA said telephone sales by Egg staff of PPI failed in its standard tests in 40% of cases between January 2005 and December 2007. Egg sold more than 106,000 PPI policies at an average cost of £156 during that period.

Egg will now write to customers who bought the cover, offering them the chance to cancel their policy and get a full refund. The FSA said that if everyone claims a refund, the bank would face a charge of over £10M.

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Egg on its Face

Ian Kerr, the chief executive of Egg, has resigned in the wake of the public relations disaster in which Egg was accused of unfairly withdrawing credit cards from thousands of responsible customers.

Egg, in an act of sheer folly, last month sent out a letter to 161,000 card users telling them that their agreements would be terminated in 35 days because they had a "higher than acceptable risk profile".

The reality being widely touted in the media and by experts was that Egg was dumping customers who paid off their debts on time, these were deemed to be unprofitable.

Labour MP Nigel Griffiths is quoted in The Times:

"I don't believe in pointing the finger...and I have not been seeking Ian Kerr's resignation. But I think it gives a clear warning to all banks and credit card lenders that they must be frank with customers.

I don't feel Egg realised the enormity of the communications disaster they were presiding over by withdrawing cards from 160,000 customers. Egg is a sad lesson to others that they cannot withdraw credit cards from responsible customers without those customers screaming blue murder."

The Financial Services Authority has passed the matter on to the Office of Fair Trading.

Egg deny that Kerr's resignation is linked to the fiasco.

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Egg To Be Grilled

Egg and its owner Citigroup Inc are facing a possible investigation over allegations that Egg cancelled credit cards because holders consistently paid up in time.

Last month, Egg said that it was going cancel the cards of around 7% of its customers. Egg claimed that the 161,000 cardholders affected had a "higher than acceptable risk profile".

However, many of those on the hit list made vocal complaints to their MPs and the media pointing out that they had good credit records, and that they were paying off the Egg cards on time.

Following this furore, the Financial Services Authority (FSA) has been forced to get off its backside and has referred Nigel Griffiths' (an MP) complaint about the issue to the Office of Fair Trading (OFT).

Mr Griffiths said that he was "very pleased" about the FSA's action. Doubtless Egg are not so pleased.

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