'Packaged account' rules proposed
Thursday 27 October 2011
The Financial Services Authority (FSA) proposed new rules today to stop banks and building societies selling customers insurance cover along with a bank account that turns out to be "useless".
The proposals relate to the selling of "packaged accounts" - current accounts which are bundled up to include extras like insurance policies and products such as ticket discounts.
The FSA, which regulates the financial services industry, said it was concerned that it was "too easy" for customers to be sold something which they do not need.
It estimates that a fifth of adults in the UK hold such an account - and while some customers get value from the package, others may not.
Sheila Nicoll, FSA director of policy said: "For some people, packaged accounts represent good value and convenience.
"But in other cases customers may find that the insurance cover they have paid for is useless.
"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's consultation document proposes that banks and building societies selling insurance as part of a packaged account will have to check whether the customer is eligible to claim under each policy and share that information with them.
They should also provide customers with an annual eligibility statement prompting them to check whether their circumstances have changed and whether the policies continue to meet their needs.
The FSA's proposals also said that if the sales adviser is recommending a packaged account they must establish whether each policy is suitable for the customer and alert them if some are not.
The body is also asking for more feedback on how to improve price transparency of packaged accounts.
Firms buy insurance policies wholesale and offer them at discounted rates in the overall package, making it hard for customers to compare costs with standalone insurance products or other bank accounts.
A statement from the British Bankers' Association said: "Packaged accounts can be a good deal for many customers as the services which you get would cost more bought individually.
"However, as with any product, customers should shop around for the deal which suits their own needs best.
"All account details are openly available on bank websites or on request.
"Customers should also remember that no one needs to pay for a current account and there is no need to switch if you are happy with the account you have.
"Our members will now be considering the consultation paper carefully and will respond fully in due course."
Financial research company Defaqto said the number of packaged current accounts available to consumers has increased by 109% since 2006.
Defaqto found that five years ago there were 33 packaged current accounts on the market - a figure which now stands at 69 - and since November 2009 there have been more packaged accounts available than free in-credit accounts.
The average monthly fee for a packaged account has increased over the same period - from £11.59 in 2006 to £15.44 currently, with monthly fees now ranging from £6.50 to £40.
David Black, Defaqto's insight analyst for banking, said: "If someone is considering opening a packaged current account, they should look at each of the incentives on offer and decide whether they need the benefit and, if so, whether what it provides is suitable for their circumstances - and ultimately represents good value against the monthly fee.
"The three high-value incentives currently offered by most packaged current accounts are travel insurance, motor breakdown cover and mobile phone insurance.
"For each benefit, it is important for people to look at the type and level of cover that is actually being offered and to compare these against other accounts and also standalone alternatives.
"In addition, people need to be mindful of duplicating cover they may already have in place, for example as part of workplace benefits.
"Essentially, everyone's needs are different so people should look to ensure that any account they choose matches those needs - and key to this is looking at the features of the account and comparing different options on this basis."
The Financial Ombudsman Service said it receives around 100 to 150 complaints about packaged accounts each year.
Typical complaints include people not realising they had a packaged account, not fully understanding how much the account would cost, and problems with the additional extras not being applicable or useful for the consumer's needs.
A spokesman for the ombudsman said: "In addition, we also see complaints about the specific product attached to the bank account, such as breakdown assistance, mobile phone and travel insurance.
"These complaints often arise when the consumer attempts to use the products, only to find that they aren't covered or have more limited cover than they realised."
Which? executive director Richard Lloyd said: "Which? has found that a third of people don't use any of the benefits offered with packaged current accounts.
"This means that they're wasting between £240 million and £320 million in bank fees each year.
"We're pleased that the FSA has investigated this and is proposing further action.
"People should only have a packaged account if they're absolutely certain that it will be cheaper for them and they'll use all of the separate benefits offered.
"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."
Mike Regnier, director of current accounts for Lloyds Banking Group, said: "We welcome the publication today of the FSA consultation paper on packaged accounts.
"In particular, we are pleased that they have recognised that these accounts can provide good value to customers.
"Our packaged accounts are designed to be simple whilst offering comprehensive levels of cover for the things that customers really need, and compare favourably to other stand-alone policies. Furthermore, our sales process is designed to identify and match customer needs.
"The FSA has put forward sensible suggestions into ways into which this market can further be improved.
"Along this line, our existing policies and sales processes already deliver many of the recommendations put forward in today's consultation paper."
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