'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."
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Scottish referendum: So how about the English now being given a chance to split from England?
- 2 London council removes 'unacceptable' Stamford Hill posters telling women which side of the road to walk down
- 3 Kim Kardashian 'nude pictures' leaked on 4chan in new celebrity hacking attack weeks after Jennifer Lawrence scandal
- 4 Matthew Miller: American sentenced to hard labour in North Korea 'wanted to be Snowden II'
- 5 Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Archbishop of Canterbury admits doubts about existence of God
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize