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FSA cracks down on packaged current accounts

The Financial Services Authority has raised concerns that customers are being sold expensive bank accounts they do not need.

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by Victoria Bischoff on Oct 27, 2011 at 11:25

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FSA cracks down on packaged current accounts

New rules dictating how banks can sell packaged current accounts were today proposed by the Financial Services Authority (FSA) amid concerns that many customers are paying for services they do not need.

Packaged current accounts provide customers with a variety of benefits, such as mobile phone insurance, travel insurance and breakdown cover, in return for a monthly fee of anything between £6.50 and £40 – which could amount to an annual cost of £480. One in five UK adults now pays for one of these accounts, according to the FSA.

However, although some customers will get value from the package, others may not, the FSA warned.

Sheila Nicoll, the FSA’s 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,’ she said.

In an attempt to clamp down on the way this type of account is sold, the FSA has proposed that banks and building societies should:

Check whether the customer is eligible to claim under each policy and share that information with them.
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.
Establish whether each policy is suitable for the customer and alert them if some are not.

The FSA is also seeking more information on ways to improve price transparency.

‘Firms buy insurance policies wholesale and offer them at discounted rates in the overall package,’ the FSA said. ‘This makes it difficult for customers to compare and contrast the costs with standalone insurance products or other bank accounts.’

New research today from financial research company Defaqto, meanwhile, revealed that the average monthly fee for a packaged account has increased from £11.59 in 2006 to £15.44 today, with monthly fees now ranging from £6.50 to £40.

And according to Defaqto, with the number of packaged current accounts available up some 109% since 2006 there are now more packaged accounts available than free in-credit accounts.

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.’

‘In addition, people need to be mindful of duplicating cover they may already have in place, for example as part of workplace benefits,’ he said.

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7 comments so far. Why not have your say?

Whilst some of the FSA new proposals may appear admirable and act to help the customer there will also be an inevitable increase in cost for the Banks who provide the service and that will of course have to be paid for by the customer. On the other hand the customer should also have the responsibility to confirm that the product is suitable for him/her and fully understand the terms and conditions. Whilst 'FREE' banking is still available there is no compulsion to take out a packaged account - that may change in the future .

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Perhaps we should start regulating supermarkets to stop us buying too much food, which we don't eat and gets thrown away....

Or force gyms to refuse to sign you up, if you don't promise to go twice a week...

or here's a good one, regulate regulators if they dont provide value for money.

hmmmm damn, but then we'd need a regulator for the regulator's regulator.... whatever the answer though, we definitely need more regulation.

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James t: Agree completely. The FSA should be fined for wasting their time (and therefore our money somehow). (Oh but that would probably require the government to do something and cost us more money !)

Ignore it and treat it with the contempt it deserves is probably the best.

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I have one of these packaged accounts. Just went up from £12.50 to £15 per month with no increase in benefits. Having read the T&C's, it seems to me that the travel insurance is next to worthless and down right dangerous if you do not take out specific cover before you travel.

Anyone have any experience in converting a packaged account back to a normal account???

Thanks for any and all replies.

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Packaged Current Accounts are a classic example of how 'soft' we have become in the way we spend our money. The banks, to their commercial credit,have seen a legal opportunity to make money. Is it not time that consumers should be held to account for their inability to spend their money in a more responsible manner.

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Was it not so long ago that the FSA was proposing that private investors had to undergo some sort of examination before they were allowed to invest in the market.

May one ask what the credentials of the FSA are to adjudicate on disputes, which they claim they can do, when they ignore the law of centuries? May I suggest, zilch, , de nada, zero F A minus 50%.

After all plumbers must qualifications, as must electricians, accountants, doctors, physios, solicitors, surgeons, opticians, architects, bus drivers, air line pilots etc etc. One exception, MPs, no qualifications required, except perhaps the ability to cheat and lie.

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Anthony Tinslay

Oct 27, 2011 at 21:32

Donald Hunter - simple - just cancel the direct debit and see what happens. If nohing untoward happens then just carry on. If the Bank get stroppy then open an account elsewhere. Read your small print as notice may be required to cancel your contract.

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