Are you eligible for your packaged account benefits?
Banks and building societies are selling packaged accounts without checking customers are eligible to use all the benefits – in particular their ability to claim on insurance policies, the Financial Services Authority (FSA) warns.
Packaged accounts (current accounts with added benefits that account holders pay a monthly fee for) have grown in popularity in recent years. One fifth of UK adults has a packaged account, according to FSA estimates, and the number of accounts on the market has increased from 33 five years ago to 69 today.
Travel, motor and mobile phone insurance are some of the most popular benefits included with packaged or 'paid-for' accounts. Almost 80% of paid-for accounts offer travel insurance; 75% include mobile phone insurance and 65% offer motor breakdown cover, according to defaqto.com.
FSA director of policy Sheila Nicoll says packaged accounts in some instances can "represent good value and convenience", but in other cases the insurance cover customers have paid for is "useless".
She adds: "We are concerned that it may be too easy at the moment for firms to sell customers something they do not understand or need.
"We want to make sure that packaged accounts are only being sold to customers who have actively decided it is the right product for them."
The FSA has outlined new proposals to try to protect customers when signing up to a packaged account.
It is calling all bank and building staff that sell the accounts to make sure potential customers are eligible to claim under insurance policies. If they are not able to claim, staff should inform the customer of this.
In addition, the FSA wants financial institutions to send customers an 'annual eligibility statement', which will prompt current account holders to check if their circumstances have changed, therefore potentially rendering an insurance policy void.
Consumer groups have welcomed the FSA proposals. Consumer Focus has voiced its concerns about insurance sold as part of a packaged account in the past.
"The last thing this market needs is another mis-selling scandal following on from PPI. Consumers need to able to trust banks to sell them products that are right for them," says Sarah Brooks, director of financial services at Consumer Focus.
Richard Lloyd, executive director of consumer group Which?, warns customers only to opt for a packaged account if they are sure they will use the separate benefits but stresses it's up to the banks to be more clear.
"Banks have a responsibility to make packaged accounts more transparent by clearly explaining what each of the individual elements are worth, so customers can compare," says Lloyd.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
A current account that charges a monthly fee in return for a “package” of additional services, such as travel insurance, credit card protection, mobile phone insurance, identity theft insurance, car breakdown cover or a “concierge service” that will book airline and theatre tickets or restaurant tables. However, many consumer experts say the features are overpriced and that more competitive deals exist elsewhere in the market and that very few packaged account holders actually take advantage of the features.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.