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%.