Financial regulator, the Financial Conduct Authority (FCA), has reached an agreement with banks and credit card providers to reimburse their customers for the insurances, which it says were mis-sold.
Here's a look at why the compensation is being offered, who can claim, and how to go about doing it.
The FCA, which regulates financial firms in the UK, has said that 13 banks and card issuers mis-sold card protection or ID theft insurance to their customers between January 2005 and March 2011.
Both insurances were actually provided by The CPP Group but banks and credit card issuers packaged it up under different names and sold it onto their customers - as you will see below.
What actually is the insurance?
Card protection allows customers to call a phone number to stop their card if it is lost or stolen. ID protection cover gives customers access to credit reports and covers expenses in the event of ID theft.
The FCA says customers were given misleading and unclear information about what these insurance policies were actually for, and what they covered.
Though the insurance was sold to people who were taking out a credit card, the FCA says that in many cases the cover was already provided by the bank concerned, and that the risks of not having cover were exaggerated.
Some cards had stickers on the back with phone numbers for customers to call to activate the card, which actually went through to a sales department.
The FCA is now making all companies involved pay back the money they took from selling policies that were not needed and inappropriate.
Which providers are involved?
Bank of Scotland
Canada Square (formerly Egg)
Home Retail Group
Royal Bank of Scotland
Tesco What products are involved?
The card protection and identity protection insurance was packaged up and sold as the following products:
Card Safe (M&S Money)
Card Guard (HSBC)
Egg Emergency Cover
Barclaycard Card Protection
Barclays Cardholder Protection
NatWest Card Protection
Card Protection Plus
Commercial Card Protection Who is eligible for compensation?
The scheme is open to all customers who purchased or renewed a card protection product, since January 14, 2005 when the FCA began regulating the sale of general insurance products, either from CPP directly or through their bank or card provider.
How much compensation will I get?
The FCA estimates that the total compensation bill could be as much as £1.3billion, and expects each customer to receive between £100 and £300, depending on their circumstances.
You'll get back what you paid for the policy, plus 8% interest. Card protection typically cost around £30 a year, while ID theft protection cost around £80 a year.
When will I get my compensation?
If you're affected by mis-selling, you'll be sent the first of two letters about compensation after August 29. This will explain the details of the compensation scheme.
You'll get the second letter in the autumn asking you to vote on whether or not you want the compensation scheme to go ahead. Providing the majority of those affected vote in its favour, the scheme will go ahead.
Martin Wheatley, chief executive of the FCA, said: "We are encouraging customers to approve the Scheme when they receive their voting letters in the autumn."
But even if you vote against it, you'll still get your compensation if the majority votes for it.
If there is a majority vote in its favour, you'll get a third letter from CCP asking if you want to be considered for compensation. This letter will include a form which you'll need to fill in and sign before the stated deadline.
If it all goes ahead, compensation pay outs are expected to start rolling out in spring 2014.
The amount banks are setting aside for Payment Protection Insurance (PPI) is still growing too, so find out if you are eligible to claim with Rachel Wait's article.
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