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The Financial Conduct Authority (FCA) has fined Carphone Warehouse £29,107,600 for failings that led to the mis-selling of ’Geek Squad’, a mobile phone insurance and technical support product.
The watchdog found The Carphone Warehouse failed to give its sales consultants “the right training to give suitable advice” to customers purchasing Geek Squad.
It added that in particular, sales consultants were not trained adequately to assess a customer’s needs to determine whether Geek Squad was suitable. They were trained to recommend Geek Squad to customers who already had cover, for example through their home insurance or bank accounts.
It determined that sales staff were trained in ‘spin selling’ and ’objection handling’, with the focus being on “overcoming customer objections rather than assessing whether the product was suitable for the customer”.
When customers complained about the sale of Geek Squad, Carphone Warehouse “failed to properly investigate and fairly consider their complaints” resulting in “valid complaints not being upheld in circumstances where the product had been mis-sold”.
During the period under investigation from 1 December 2008 to 30 June 2015, Carphone Warehouse made regulated sales of Geek Squad policies worth over £444.7m, of which a high proportion of these policies were subsequently cancelled early.
The FCA said in January 2014 alone, 35% of policies were cancelled within the first three months from inception and added this was an “indicator of a risk of mis-selling which Carphone Warehouse failed to properly consider”.
The FCA therefore found that The Carphone Warehouse breached Principle 3, Principle 6 and Principle 9 of the FCA’s Principles for Businesses between 1 December 2008 and 30 June 2015.
The firm did not dispute the FCA’s findings and exercised its right, under the FCA’s partly contested case process, to ask the FCA’s Regulatory Decisions Committee to assess the appropriate level of sanction. The firm’s agreement to accept the FCA’s findings meant it qualified for a 30% discount. Otherwise, the FCA would have imposed a financial penalty of £41,582,300.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “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.
“Without whistleblowers coming forward these practices may never have come to light. In the past few years, whistleblowers have contributed critical intelligence to the enforcement actions we have taken against firms and individuals.”
Alex Baldock, group chief executive at Dixons Carphone, said: “We’re obviously disappointed that Carphone Warehouse fell short in the past. But we’re a very different business today; as the FCA acknowledges, we’ve made significant improvements since 2015. We’re committed to stay on that trajectory, and to make sure all customers enjoy the right technology products and services for them.”
Carphone Warehouse revealed the company has since introduced more comprehensive customer-needs assessments, enhanced colleague training and compliance monitoring, invested in customer service and post-sale customer satisfaction, and substantially increased the number of independent financial services coaches across the Carphone Warehouse store estate.
The company has also voluntarily carried out two customer redress programmes, covering complaints and cancellations.
