Jeff Salway: Customers may find surprise in packages

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New rules will force banks to offer suitable accounts, says Jeff Salway

SCOTS forking out monthly fees for current accounts have been told to check they’re using the perks they’re paying for after the regulator moved to clamp down on the products.

More than ten million people in the UK hold a packaged account, paying an average of just over £15 a month for 
benefits including insurance, commission-free currency, 
enhanced savings rates and 
favourable overdraft terms.

But many get little back for their money. There are particular concerns over the number of people who aren’t eligible for the insurance policies they buy as part of the accounts, with mis-selling complaints rising all the time.

New rules coming into force in March will force banks and building societies to tell customers when packaged accounts aren’t suitable for them. Under the guidelines, set out by the Financial Services 
Authority (FSA), providers will have to send customers an 
annual eligibility statement, 
including information on any insurance bought through their account and reminding them to check that the benefits are suitable for their needs.

Customers won’t be given a breakdown of the insurance premium for packaged account sales, despite calls for such information. However, they will be told if they reach, or are due to reach, the age limit for any travel insurance policy that forms part of their account.

The rules follow months of consultation and represent a response to fears over the extent to which the products 
are mis-sold.

It is thought that the new guidelines will spark a campaign by the claims management companies that have made billions out of the payment protection insurance (PPI) mis-selling scandal. Customers who find they aren’t suitable for accounts for which they have been paying a monthly fee are likely to seek compensation – and claims managers are poised to take advantage.

And the problem is potentially considerable. Research by consumer group Which? found that about a third of people holding the accounts fail to use any of the benefits they’re paying for.

Complaints about the products are relatively low, but they’re rising quickly. The 
Financial Ombudsman Service (FOS) gets some 30 complaints a week about packaged accounts, plus hundreds of queries about them that don’t evolve into full investigations.

Three-quarters of those complaints are about the way in which they were sold by the bank or building society. Often the individual hadn’t realised they had a fee-charging account, or they felt they’d been pressured into taking an account they hadn’t wanted.

The ombudsman also reported complaints from people not fully understanding the fees charged or finding they were ineligible for the insurance 

“These problems tend to arise when people come to make a claim – only to find that their policy offered only limited cover or pays out only under the most particular of circumstances,” a spokesman for the FOS said.

Grievances over the individual components are also common, particularly the value of mobile phone and travel insurance. “We have always advised it makes sense to have travel insurance in place before 
you travel – but cheapest isn’t always best,” the spokesman said. “A cheaper policy is more likely to be less comprehensive and may include more restrictive exclusions. It is important that before you take out any policy, you read the small print, and this is just as true for policies that are provided as a benefit of a ‘premium’ 
account as it is for any stand-alone policy.”

It sounds obvious, but make sure if you’re paying for a packaged account that you actually need the benefits. Breakdown cover is automatically included in most accounts, but it’s useless if you don’t drive.

But it’s less straightforward working out the value of other insurance, according to Sylvia Waycot, spokeswoman for Moneyfacts. “Travel insurance looks very useful if you travel, and many folk may just assume that is one thing less to worry about – except that the cover may have limits such as no scuba diving or only valid if you are under 70 years of age,” she said. “These limitations were generally not pointed out and led to many people who fell foul feeling unhappy with their packaged account.”

Will the new rules improve matters? Waycot thinks they’re a step in the right direction.

“The insurance benefits will still be as complicated but the way they are offered will change,” she said. “The bank or building society will need to highlight to the customer what the insurances are and will also need to highlight when the insurance is of limited use.”

She believes people will review their accounts once they’re told more about the benefits under the new rules. 
If that affects sales or prompts a flood of complaints, it could result in providers re-evaluating the products and perhaps launching accounts where 
consumers pick and choose the benefits.

Packaged accounts can be good value, Waycot added, but the onus is currently on customers to read through dozens of pages of small print.

“Providers taking responsibility for making sure the customer knows all the good and bad points before committing to a packaged account can only be a good thing,” she said.

Andrew Hagger, personal finance expert at, said: “The new FSA proposals won’t make it any easier for consumers to compare the range of packaged accounts on the market, but for those that sign up for the accounts, at least they will know they are eligible for the insurance they are relying on.”

There are dozens of packaged accounts available and their quality varies wildly. The Co-op Bank Privilege Premier account is Hagger’s pick of a mixed bunch.

“Not only do you get worldwide family multi-trip insurance and RAC UK and European breakdown cover, but the account also covers up to four smartphones in the family up to £1,000 each. The monthly cost of this account is £13, but if you were to take out iPhone insurance with Vodafone, it would cost you £12.99 a month for just one iPhone.”

Twitter: @VaughanSalway