Citywire printed articles sponsored by:

View the article online at http://citywire.co.uk/money/article/a537002

Packaged current accounts: did banks not learn from PPI?

Is it really not yet standard practice for bank sales staff to explain how a product will benefit the customer before selling it to them?

FTSE 350

Prev Close:

More FTSE charts & prices

by Victoria Bischoff on Oct 27, 2011 at 17:11

Follow VBischoff

Packaged current accounts: did banks not learn from PPI?

The Financial Services Authority’s (FSA) plans to crack down on the way banks sell packaged current accounts are all well and good but, really, when will the banks learn their lesson?

Just to recap, packaged current accounts provide customers with a handful of benefits, such as mobile phone insurance, travel insurance and breakdown cover, in return for a monthly fee – usually between £5 and £25. Today the FSA proposed a set of new rules laying out how this type of account should be sold to ensure people aren't forking out for services they don't need.

These ‘new rules’ however essentially boil down to making sure the customer understands what they are paying for. Take the first new rule for example – banks should check the customer is eligible to claim under the policies sold as part of the account.

Isn’t this blindingly obvious?

Is it really not yet standard practice for sales staff to explain how a product will benefit the customer before selling it to them? And better yet, in instances where the product clearly won’t benefit the customer – i.e. they don’t have a car and so won’t ever need breakdown insurance – are staff not yet required to flag this up?

This is basic customer care. Surely the banks do not still need this principle spoon-fed to them?

What struck me about this report is how frighteningly similar parts of it are to issues raised by the recent payment protection insurance (PPI) mis-selling scandal. In fact you can’t help but wonder if packaged current accounts will end up being PPI: the sequel.

While completely different products, like PPI, people tend not to buy packaged current accounts but are rather sold them. As the FSA said: ‘Consumers do not tend to proactively search for this type of account but are more likely to be upgraded by their existing bank or offered a packaged bank account rather than a fee-free account when opening a new current account’.

It is this type of pushy sales tactic that can be dangerous for consumers – especially those who have a tendency to be swayed by clever sales talk. Couple this with bank staff who are under pressure to hit demanding sales targets and encouraged by tempting staff incentives to sell more of one type of product than another, and you've got yourself a mis-selling scandal breeding machine.

And while it’s good news for the consumer that the FSA is now stepping in to monitor these sales practices – the annual eligibility statement setting out in what instances customers can claim on policies should be particularly beneficial for customers – what about the people who have already been sold an account?

Anecdotal evidence in the press certainly indicates that there are many examples of people who have been sold a packaged current account that is completely inappropriate for their circumstances. Here at Citywire we’ve also received complaints.

The question however is how many complaints will it take before the FSA looks closer at how widespread these cases of mis-selling are?

Email a friend

Email me when someone comments on this article Print

9 comments so far. Why not have your say?

I suppose this will result in a new stream of annoying TV ads by the ambulance chasing solicitors brigade.

CAVEAT EMPTOR I say.

report this

Customers ARE pound signs... to the banks, then the solicitors.

report this

Surely if anyone is stupid enough to buy something they don't want then this will give them a lesson for the future.......is it really neccessary for a bunch of overpaid (with our taxes!) nannies to insist they are compensated.

If it is then how much can I have for buying a ghastly pizza that was described as delicious on the box?!

report this

I have one of these accounts & believe I benefit from being a car driver - the cost of my package covers my AA cover which at the last count I paid £175/pa. The monthly charge more than covers this, as well as phone insurance. I also have travel insurance which I have never claimed on, so no idea whether or not it actually works.

If customers know what they are getting, then they should decide whether or not they are benefitting!

report this

I wish the FSA concentrated on sorting out the huge salaries & equally huge bonus culture within the banking sector - that should be their primary job, but we know that they cannot do anything about this, so they just throw more balls into the air to distract everyone.

When the UK government handed over the bail out money to the banks, why did they not make sure that they had some leverage about how banks behave - in view of the latest figures published, can banks really continue to justify the salaries/bonuses it pays top execs?

Almost the entire financial services are rotten to the core - any product you buy, my advice would be buyer beware! I have been looking at ethical investments, & how can I determine if my money is not being used to sell/buy more arms & weapons of mass destruction. Every company has a subsidiary & it is very difficult to get to the core owners. There is no guarantee that your investment does not end up in projects to denude rain forests, or take land away from peasant farmers so that multi nationals can pillage the resources, with very little income feeding back to the local populations across the world.

There maybe some corporations out there, who operate like John Lewis, where workers get to benefit, just as much as the owners?

report this

Banking products are designed by brain dead marketing types who have no understanding of consumer legislation or of anything much beyond making a pretty package and teaching their staff to lie by omission if not commission.

Talking of commission... As long as the short term bonus culture continues bankers at every level will act in their own very short term interests with no thought for their customers or for the long term interests of their own organisation.

Banning commission and separating banking functions such as the provision of money transmission services from sales of insurance, pensions, credit cards and such would solve a lot of problems. Ban counter clerks from trying to sell useless crap and from receiving commission or any kind of sales target related bonus. But allow a bank branch to have separate sections for other services with clear signs directing customers to them.

Anyone operating on commission should be required to wear a big button saying so. Just as an aide memoir for the dimwitted among us.

report this

Preying on the feeble minded is what selling's all about these days. It's not just banks (current whipping boys) - how about cosmetics companies flogging anti-age products to the vain and vulnerable? Slimming products? Online betting? Low cost flights? Pay day loans? etc etc..

report this

J-S B

I have some sympathy with your point. But we have reached the point where regulation is a handicap to the rest of us who have functioning brains. In fact we reached it long ago.

Beyond the requirements of physical safety and countering fraud, instead of regulating products, we should regulate consumers. If consumers had to carry around certificates of competence and those without had to resign their decision making to others (i.e. were not let out without their keepers) life would be much simpler.

On the stock market before dealing in complicated products like covered warrants or traded options you have to declare that you are either a qualified professional or have relevant experience and wealth. We don't let people drive cars without passing a test.

An even greater improvement would be to either give more votes to those with the certificates of competence or remove them from the feeble minded. Imagine a world where it didn't matter what lies the Sun peddled to its readers because they didn't have the vote!

report this

Chris Hayes

Oct 28, 2011 at 17:34

"Thick as mince" customers + claim culture + Peston-alism = today's world.

There is a massive difference between being deliberately mis-sold something e.g. with key aspects/constraints omitted or misrepresented....and a customer who frankly can't be arsed to take personal responsibility.

There is no mention (....yet?!) of these accounts being passed off as anything other than fee-based - whether as an up-sell or to a new customer.

If "victim's" thought processes are "I wish there was a fee-free account but I don't want to ask because....." or "OK, I'll choose to pay for the enhanced version...and not bother to find out through any means available to me if I get (at the very least) value for money" then they deserve everything they (don't) get.

What worries me more is what these people are doing in their non-banking time.

Are these shrinking violets, day-dreamers & "key facts" avoiders operating heavy machinery near you!?

report this

Please sign in here or register here to comment. It is free to register and only takes a minute or two.