A FRESH rise in mis-selling claims against high street banks is threatening to undermine new rules aimed at encouraging more people to switch current accounts.
There has been a sharp increase in recent months in complaints about the sale and content of paid-for packaged current accounts, according to the Financial Ombudsman Service (FoS). It also revealed that most valid complaints are being rejected by providers, in an echo of the payment protection insurance (PPI) scandal.
The report cast a cloud over the high street as a new seven-day switching guarantee took effect.
The service, to which more than 30 banks and building societies have signed up, means current account transfers have to be completed within seven working days.
Customers now need only contact the new provider, open an account and select a switching date. The new provider takes charge of the transfer and must also cover any losses suffered in the event of problems in the process.
The launch was accompanied by a raft of promotions and incentives as the high street banks and building societies sought to entice new customers.
But while the new guarantee is designed to increase switching levels and raise standards in banking, rules introduced earlier this year have triggered a surge of complaints about packaged current accounts.
The products, held by around ten million bank customers, offer benefits such as travel and mobile phone insurance and breakdown assistance in exchange for a monthly fee averaging £15.
Concerns that people are paying for benefits they can’t use prompted the regulator to act in April by making providers send out annual statements to customers setting out what they get for their money.
Experts predicted that the changes would spark a rise in complaints as more people receive their packaged account statements – and the early evidence suggests they were right.
The latest report from the FoS reveals that it is receiving 70 complaints a week about the accounts, almost double the rate of a year ago.
Most complaints about the accounts are from people who didn’t know they had one, while many were aware of the benefits but didn’t realise they were paying for them.
The ombudsman also reported complaints from consumers who had found they were ineligible for an insurance policy included in their account, often because of their age or a pre-existing medical condition.
The new rules will eventually reduce the number of people taking out accounts with insurance-related incentives for which they are ineligible. In the meantime, however, many people continue to pay for benefits they don’t need.
“Packaged accounts suit some people but certainly not all,” said David Black, banking specialist at Consumer Intelligence. “It’s still down to the consumer to decide whether or not to open the packaged account but they should now be able to make that decision from a more informed position.”
So how can you be sure that a packaged account is worth keeping or taking out?
Black picked out four questions to ask. Do I already have the insurance benefits included? Do I need it? Is it suitable for my circumstances? And can those elements that I do need be bought cheaper independently?
“The process is to decide whether the monthly fee charged is justified by the incentives on offer,” said Black.
While some providers, including Lloyds and the Co-op, withdrew their packaged accounts from branches ahead of the measures introduced in April, Black expects banks to launch more “pick and mix”-style offerings. Barclays already allows customers with free accounts to add one or more paid-for benefits from a list of items including breakdown cover and travel insurance.
“A lot of packaged accounts also offer special or exclusive deals on other financial products to their packaged account customers,” Black added.
“But it’s worth bearing in mind that just because an additional product is labelled as a ‘special’ or ‘exclusive’ deal doesn’t necessarily mean that it’s competitive or can’t be beaten, so it’s always worth checking to see what’s generally available elsewhere as well.”