Capital One last week became the first big credit-card firm to feel the wrath of the Financial Services Authority (FSA), the City watchdog, over controversial debt insurance.

It was fined £175,000 for mis-selling so-called payment-protection insurance (PPI), which is supposed to cover card or loan repayments if you are unable to work due to accident, sickness or redundancy.

Tthe FSA believes 50,000 Capital One customers were not given important information about their PPI policies at the point of sale. They could now be eligible for compensation.

Capital One has written to all these customers offering refunds to those who want to cancel their policies. It has also said any claims have been paid in full. If you have had a claim turned down in the past and believe you were mis-sold, contact Capital One. It will deal with such complaints on a case-by-case basis.

Nick White at Uswitch, said: “We feel Capital One has got off lightly in this instance, as the fine of £175,000 equates to just £3.50 per wronged customer over the period from January 2005 to April 2006.

“Given the cost of PPI on credit cards, this fine will hardly act as a warning to the industry, nor will it make a dent in the fees that Capital One is collecting.”

GE Capital, the store-card giant, was fined a record £610,000 at the end of last month for similar failings.

Analysts believe millions of consumers could be due compensation totalling more than £10 billion in what has been described as the biggest scandal since mortgage endowment mis-selling.

Some 7m PPI policies are sold each year by banks and building societies when people take out loans, mortgages, credit cards and store cards. High-street stores also push the cover to customers purchasing electrical goods.

Many are cajoled into taking the cover at the point of sale without understanding what they are getting or having the chance to seek a cheaper policy elsewhere.

Salesmen also routinely fail to explain the restrictions and exclusions. Most policies do not pay out for the first 30 days and conditions such as back pain and stress tend not to be included. The self-employed are also usually not covered.

In addition to Capital One and GE Capital, other firms are thought to be on the FSA’s hit-list, including high-street banks.

The Competition Commission has also launched an investigation into the PPI market and is due to report in the summer.

The clampdown could open the floodgates to millions of compensation claims.

It is not only those who found their cover was worthless who may be eligible. If you bought PPI from your loan or credit-card provider, the chances are you paid over the odds for it.

Shane Craig at Paymentcare, a stand-alone PPI provider said: “Banks and building societies generate huge profits by charging overinflated premiums.

“It is essential consumers are made aware there is an affordable alternative and that PPI doesn’t have to be bought along with a loan or card.”

Anyone who bought PPI with a loan or credit card is urged to ask for the cover to be cancelled.

Claire Oldstein at the Post Office, which offers stand-alone PPI, said: “People should call their lender and ask what they might receive if they cancelled their payment protection. The refund could be substantial, so you shouldn’t miss out.”

If you have been sold useless insurance, let us know at times-online.co.uk/moneyweblog

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