Is this the future of remediation?

Posted: 3rd February 2014

In 2012 the then Financial Services Authority identified two significant issues with the lifestyle services company CPP. The first related to the conduct of CPP’s sales staff when selling identity theft protection cover over the telephone. The second related to a ‘flaw’ in the card protection product which offered up to £5,000 cover for fraudulent use of a debit or credit card following loss or theft prior to notifying the issuing bank. This went up to £100,000 post-notification. In reality, however, this cover provided little or no benefit because the maximum amount most people are usually exposed to is £50 pre-notification and nothing thereafter.

The potential financial impact to CPP of remediating these issues was, and remains, significant. As a result, consideration was given to operating the remediation programme via a scheme of arrangement.  As far as we know this is the first time a scheme has been used to deliver a consumer based remediation programme of this type.

What is a scheme of arrangement?

A scheme of arrangement is the legal framework usually used when firms become insolvent and are facing liquidation. The purpose of the scheme is to return funds to the firm’s creditors. In the case of CPP, this method is being used as a method of remediation.  The scheme has been established with the support of five core business partners (credit card providers) and the inclusion of a further 11 firms.

One of the main benefits of a scheme of arrangement is that, once concluded, creditors – or claimants – are time barred from claiming and so the liability can be, effectively, capped. For the firm in question, this makes it a particularly attractive method for large scale remediation, as in this case.

The vote

A key step, and potential hurdle, in establishing a scheme involves a vote by the creditors to confirm their support. If the vote is passed the scheme requires court approval before a third mailing can be sent which will in this case take the form of a simple ‘claim form’. The return of this form qualifies the customer for redress which will be a full refund of premiums paid plus interest.

Response rates

On 9 January 2014 CPP announced that the voting process had been completed and 98% of the votes cast were in favour of the scheme. High Court approval has now been obtained which means claim forms will be sent to the entire population, including the remaining population who did not vote.

Of interest is the fact that votes were cast by 18% of those eligible to do so. Initially CPP Group announced that a successful claim rate of more than 25% would materially impact their financial wellbeing and, effectively, mean their demise. On 9 January CPP revised this figure to 32%.

In our experience we would usually consider 30% a good result for a response rate linked to a remediation focused customer contact exercise such as this.

What next?

This response rate is interesting. It is reasonable to assume that the number of claims to come will be higher than the number of votes (18%) cast.

This first in alternative approaches to remediation is not yet complete. We will watch developments with interest to monitor response to the CPP scheme of arrangement, impact on the firm, complainants and whether this starts a new trend in large scale remediation programmes.