Jeff Salway: Banks fear next mis-selling scandal
One by one we’ll stand up and explain ruefully how we came under the spell of a slick bank adviser who invariably omitted some very crucial details when selling us a product. Like the cost, for example, or the fact that it would be utterly ill-suited to us.
Members of the group could also join Vulture Victims. There they could tell of how they were ripped off all over again by claims management companies that said they would help secure compensation for the original misdemeanour.
My first taste of bank mis-selling came when I was signed up for a packaged current account without being told it came with a fee. The account came with a few so-called benefits that were as much use to me as a chocolate kettle. Unfortunately it was six months before I realised the bank was taking £9 out of my account every month to pay for it.
My experience is all too typical of consumers who have taken out packaged or added value accounts. These now cost around £15 a month on average and include perks such as travel insurance and favourable savings rates.
There’s a good chance that you’re among the ten million bank customers paying for a packaged account. There’s also a strong chance that you’re getting little or nothing back for that monthly fee.
It’s possible too that you’re paying for insurance cover that you either have already or don’t need.
Packaged current accounts have become a very lucrative earner for banks and building societies in recent years, not to mention some high-street retailers. They’re central to cross-selling strategies and a vital income stream now that revenue from PPI – and, to a lesser extent, overdraft charges – has dried up.
But rules taking effect today have sparked something of a panic among packaged account providers.
In what is effectively the last move by the Financial Services Authority, which is replaced tomorrow by the Financial Conduct Authority, providers now have to make it far clearer to customers what they’re getting for their money.
The main change is that packaged account users will now get annual eligibility statements outlining the insurance cover included, making it easier to work out if it’s suitable for them. For years banks have been allowed to flog the accounts without checking that the benefits meet the needs of the customer.
The changes are simple but important. You can tell they’ve got a good chance of hitting the spot because some providers, including Lloyds TSB and the Co-operative, have responded by taking their packaged accounts off the shelves.
They’ve taken action because they’re worried, rightly, that customers paying for accounts they don’t need will finally realise they’ve been mis-sold. Claims management companies have cottoned on already. Over the coming months you can expect to hear plenty – through daytime TV adverts, cold calls and spam e-mails – about the compensation you could be due if you’ve taken out a packaged account.
There is a downside to the new rules, with the cost of packaged accounts likely to rise as banks pass the extra regulatory costs on to their customers.
But it’s a price worth paying if it means more people realise they’re being ripped off.
So the last act of the outgoing regulator – one that has presided over the banking crisis, the Libor scandal and numerous mis-selling outrages – is to usher in rules that may belatedly prevent more consumers from being mis-sold a pup.
It’s taken too long and for many people it’ll be too late. It may even trigger the next surge in compensation claims. The FSA got there in the end but, typically, it should have acted far, far earlier.