The policies promised to compensate credit card holders in the event they fell victim to card fraud as a result of loss or theft. The policies were produced by a company called Affinnion, and sold by banks between January 2005 and August 2013; banks earned a sizeable commission for each successful sale.

However, the policies were obsolete, as banks are obliged to cover customers for any losses in any event. “Our view is that customers did not need this cover, as their bank or card issuer is typically responsible for any transactions after they tell it their card has been lost or stolen,” the Financial Conduct Authority (FCA) said in a statement issued yesterday.

Customers who were mis-sold such policies will receive their money back, plus 8 per cent interest a year. Payouts are expected towards the end of 2015.

Banks and credit card issuers that will be required to make repayments are; AIB Group (UK) Plc trading as First Trust Bank in Northern Ireland and Allied Irish Bank (GB) in Great Britain; Barclays; Capital One; Clydesdale; HSBC; Lloyds Bank; Northern Bank trading as Danske Bank; Santander; Tesco Personal Finance; The Co-operative Bank and The Royal Bank of Scotland.

“We have been encouraged that, working closely with the FCA, a large number of firms have voluntarily come together to create a redress scheme that will provide a fair outcome for customers,” Tracey McDermott, director of supervision and authorisations at the FCA, said. “Such a willingness to take steps to resolve historic problems is an important step to restoring trust in the financial services.”

The move was welcomed positively by some industry commentators. “It is great to see so many high street banks enter into this voluntary agreement to try and redress some of the historic mis-selling in the sector,” said Matt Sanders, credit card spokesperson at Gocompare.com. “It is good to know that consumers will be able to get some form of reimbursement for buying products that they did not need.”

Others, however, were less cheered by the news. David Mann, head of money at Uswitch.com, noted that “this situation will feel all too familiar to many consumers”, and that there is still “a long way to go to fully restore trust in banks”.