N Brown probed over rip-off policies: Fashion chain to hand out £40m compensation for selling bad-value insurance
Style: N Brown model Lisa Snowdon
Oonline retailer N Brown will hand out £40million compensation after selling customers poor-value insurance on its clothes and homeware.
The plus-sized clothing specialist, whose brands include Simply Be, Jacamo and JD Williams, will contact around 150,000 customers following concerns raised by the watchdog, the Financial Conduct Authority (FCA).
The latest worries come after a Mail investigation revealed the firm was charging interest rates of almost 60 per cent.
Shoppers paid premiums of an average £100 for insurance provided by a third party underwriter on N Brown products but rarely made a claim.
N Brown declined to disclose how much it made from the deals.
It is the latest blow to the firm over its financial products after it set aside around £22.9million to compensate customers mis-sold payment protection insurance.
Yesterday, analysts said the FCA could scrutinise the firm’s financial services arm more closely.
Advertised by TV star Lorraine Kelly, model Lisa Snowdon and former cricketer Freddie Flintoff, N Brown made around one-third of its £901million annual income from interest and fees charged on credit deals used to pay for clothes – rather than the clothing itself.
In May, the Mail revealed it charges APR as high as 58.7 per cent, with fees of £12 for late payments. A quarter of 4.3million customers buy on credit.
UBS analysts said yesterday: ‘There is a risk the FCA could look at the profitability of the credit book and whether the interest rate charged by N Brown offers value for money.
This, we believe, is a key concern for the N Brown group given its materiality to group profit before tax.’
However, N Brown believes that is unlikely, as the FCA gave ‘full and unconditional’ authorisation to its financial services business in September last year.
The insurance at the heart of its latest problems was sold to customers between 2006 and 2014, mostly before 2011.
At the time, N Brown was more of a catalogue business selling homeware products such as electrical goods.
But insurance was also sold on cut-price clothes.
It is believed that the insurance provider contacted customers after the sale to offer insurance, meaning they had to expressly choose it rather than opt out.
It reviewed the policies after the FCA asked the industry to make sure insurance products were fair value and found a low level of claims, suggesting the policies were bad value.
The £35million-£40million cost will not affect underlying operations, N Brown said, and trading is still strong. Shares yesterday fell around 6 per cent to 284.8p. The FCA declined to comment.