Watchdog cracks down on packaged account sales
From next spring banks will be required to check that customers are able to claim on insurance before selling them costly packaged or 'upgrade' accounts following the publication of new rules from the Financial Services Authority.
Packaged accounts are paid-for current accounts that include additional benefits like travel and mobile phone insurance, breakdown cover, commission-free currency as well as better savings rates and enhanced overdraft terms. They typically cost between £10 and £13 a month.
However banks have come under fire for pushing these expensive accounts onto customers who do not need the benefits or would not be able to claim on the insurance. As banks continue to pay compensation to customers who have been mis-sold payment protection insurance, the FSA wants to ensure they do not become the next mis-selling scandal.
Under the new rules - which will come into force in March 2013 - banks and building societies will have to:
Check the customer is able to claim on each insurance policy and share that information with them;
Alert the customer of any policies that are not suitable for them;
Provide a yearly eligibility statement that sets out the requirements to claim under each of the benefits.
According to the FSA one in five adults now hold a packaged account.
Sheila Nicoll, FSA director of policy, says: "These products are often referred to as upgraded accounts but if you end up paying for an element you can't claim on, it's money down the drain. We are closely monitoring the promotion of packaged bank accounts and the new rules will make sure customers know what they're buying and that they can rely on the product or have the limitations explained before buying."
Michael Ossei, personal finance expert at uSwitch.com, says a review is long overdue.
"For too long, banks have been signing up customers to these fee-paying accounts with little evidence to suggest that the customer actually requires or can even use the benefits that they are paying for."
According to the comparison site's research just three in 10 packaged customers use the benefits regularly while two in 10 have never used them at all.
Earlier this month Marks & Spencer Money announced it would start offering a current account from the autumn. In return for a £20 a month charge account holders will get benefits including travel insurance, in-store benefits and a savings account with a fixed rate of 6%.
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.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
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.