Bank account holders who pay a monthly fee for a packaged account may be able to reclaim charges if it is deemed that the package included “useless” insurance products.
Under new rules, banks will now be required to carefully assess if the products in the bank account package can be used and provide any benefit to potential customers.
The Financial Services Authority (FSA) said that customers who have already been sold these types of bank accounts that typically include travel or mobile phone insurance might be able to reclaim money if they were sold a packaged account that they did not need and that was not explained correctly by the provider.
The FSA has published proposed guidelines that aim to make sure that each provider offering a packaged account must check whether each individual customer is eligible to claim against the insurance policies contained, provide customers with an annual eligibility statement and establish whether each policy is suitable for the customer and alert them if some are not.
Sheila Nicoll, FSA director of policy said: "We are concerned that it maybe too easy at the moment for firms to sell customers something they do not understand or need.”
One in five UK adults is estimated to hold a packaged bank account, the cost of which is often around £300 a year. Since the financial crisis banks have increased the amount of packaged bank accounts they offer as a way to increase profits and there are now more packaged accounts than free in-credit accounts available.
The FSA is concerned that insurance elements of the package are being sold in the same way as payment protection insurance (PPI), the mis-selling of which caused a major scandal and legal case that was eventually settled in favour of the consumer, costing the banks around £7 billion.
Analysis by independent financial research company Defaqto reveals that in 2006 there were just 33 packaged accounts and that this figure now stands at 69, an increase of 109 per cent.
David Black, Defaqto's Insight Analyst for Banking, said: “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.”
Consumer groups have conducted research that shows just one in ten customers who pay for an insurance product through a packaged bank account actually use it to get the benefits.
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 £240m and £320m in bank fees each year.”
Sarah Brooks, Director of Financial Services at Consumer Focus, said: “The last thing this market needs is another mis-selling scandal following on from PPI. Consumers need to able to trust banks to sell them products that are right for them.”
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