Insurance that is hard to understand, expensive and potentially useless for the customers buying it – these are criticisms of the policies bundled into so-called “packaged” bank accounts.
They sound worryingly like those directed at Payment Protection Insurance, the controversial loan cover at the centre of one of the biggest mis-selling scandals of all time. But as banks have been hit with billions of pounds worth of PPI claims, many have moved to boost profits by aggressively selling other kinds of insurance – by packaging it up with current accounts that carry a monthly fee.
That growth looks set to be cut short, however, after the financial regulator this week clamped down on the sale of insurance alongside current accounts. The popularity of packaged accounts, which typically charge between £10 and £25 a month, has exploded in recent years. Analysts say there are now more fee-based accounts available than there are free alternatives.
One in five customers pay for their current account, according to the Financial Services Authority, while at the biggest providers, such as Lloyds Banking Group, the proportion is thought to be higher. Banks – and the FSA – say that for the right customers these accounts can be good value.
But research from consumer groups has found that fewer than one in 10 people who pay for their account regularly use the insurance provided. In addition, many customers who took out insurance as part of a bundled service were already covered by existing policies elsewhere. At present there is nothing stopping banks from providing travel insurance to customers that rarely venture abroad, for example, or to continue charging even if the account holder becomes ineligible for the services.
The FSA plans to make banks check whether customers would be able to claim on the policies provided with the account and inform them if they could not. Banks will also have to update customers each year as to whether they would still be eligible for the services. While the banks say they already meet the majority of the proposed rules, they acknowledge it will be tougher to sell these accounts in future. Rather than providing a list of benefits and exclusions – and leaving it up to customers to decide – they will have to conduct far more rigorous checks.
After a string of high profile – and enormously expensive – consumer failures, experts say it is crucial that the FSA gets to grips with any product that could create problems in future. “The last thing this market needs is another mis-selling scandal following on from PPI,” says Sarah Brooks, director of financial services at Consumer Focus.
Sally Bowyer, Managing Director of Brunel Franklin, stressed that vendors had a responsibility to ensure their products were appropriate for individual customers before completing the transaction. “Unfortunately, the mis-sale of PPI policies is by no means unusual. Customers may well wish to protect their loan repayments, but all too often they have been sold products that were completely unsuitable for their needs.”
“We are pleased to have been able to help thousands of clients and get the maximum PPI refund they are entitled to; many PPI cases we see illustrate just how careful you need to be when taking out loans and credit agreements, particularly over the phone. It is easy to rush things over the phone and all too easy for the vendor not to make clear the all important detail of the policy. It really does pay to check the small print.”
Learn more about PPI refunds and find out if you could apply for a refund today! Visit the website www.brunelfranklin.com or call Brunel Franklin, free, on 0800 051 54 51.