Whistleblowing complaints led to Carphone Warehouse landing one of the UK financial regulator’s biggest fines of the year after the mobile-phone retailer mis-sold its “Geek Squad” insurance and technical-support product.
The Financial Conduct Authority levied a £29.1m fine on Carphone Warehouse, part of the merged Dixons Carphone electronics retailer, after finding staff were trained more in countering customer objections than assessing whether the product was appropriate.
The FCA found the company had trained staff in “spin selling” the add-on product, persuading customers to buy the product regardless of whether they needed it.
The fine is the third largest levied by the FCA this financial year. The misconduct predates new rules that came into force in October, stipulating that insurers need to ensure retailers only sell products that meet customers’ needs. The rules apply to any company, even if they are not regulated by the FCA.
The watchdog said sales consultants were not trained to gauge customers’ needs to see whether Geek Squad was suitable and instead were told to recommend the product to customers who already had cover — for example through their home insurance or bank accounts, according to findings published on Wednesday.
“The Carphone Warehouse and its staff persuaded customers to purchase the Geek Squad product which in some cases had little to no value because the customer already had insurance cover. The high level of cancellations should have been a clear indicator to the management of mis-selling,” said Mark Steward, executive director of enforcement and market oversight at the FCA.
It is not the first time Carphone Warehouse has been in the crosshairs of the City regulator for mis-selling insurance products. The FCA’s predecessor, the Financial Services Authority, fined Carphone Warehouse £245,000 in 2006 for pushing insurance on customers without fully explaining the necessary information. It pledged at the time to overhaul its compliance and sales of insurance.
The conduct that led to Wednesday’s fine began only two years after the earlier fine. In the period investigated, between December 2008 and June 2015, the retailer sold £444.7m worth of Geek Squad policies, with many of these being cancelled early, which the regulator said pointed to mis-selling. In January 2014, 35 per cent of policies were cancelled within the first three months.
Customers who asked to think about it were encouraged to purchase the product and cancel within 14 days. The FCA pointed out that 35 per cent of policies did indeed cancel within the first three months, which the regulator said the company did not properly consider as a red flag.
“Organisations should ensure that, in addition to training staff, they monitor the cancellation levels of policies,” said Paula Gaddum, a partner at Eversheds Sutherland, a law firm. “If organisations see a high number of cancellations, they should investigate the cause to ensure that the policies are not being mis-sold.”
Carphone Warehouse did not dispute the FCA’s findings, which led to a reduction of the fine by 30 per cent from £41.6m.
The group said on Wednesday it “accepts that in the past the company’s practices fell short”. It added: “As the FCA acknowledges in its decision, ‘Carphone Warehouse has made significant improvements to its approach to regulatory matters’ since 2015.”
Dixons said the fine would not affect the guidance it gave in a trading update in January, as it had recorded a provision in its interim financial statement on December 12.
