marylsommers: Packaged accounts targeted

Watchdog wants to force banks to check customers are eligible to claim on insurance sold in packaged accounts, as it looks to prevent a mis-selling scandal

Rules governing the sale of paid-for bank accounts could be tightened to prevent another major insurance mis-selling scandal, under proposals from the City watchdog.

The Financial Services Authority (FSA) wants to force banks and building societies to check that customers are eligible to claim on insurance cover before selling it to them as part of a packaged bank account.

Such accounts bundle a current account with a range of insurance policies that typically includes breakdown, travel, ID theft and mobile phone cover. The accounts, which typically attract a monthly fee of between �8 and �25, also often offer access to preferential terms for other financial services, and sometimes non-financial products and services.

The number of people with a packaged account has escalated in the past few years, with about one in five of the UK adult population owning one. The range of different packages available has nearly doubled in the four years to 2012, which the FSA is concerned is making it difficult for consumers to make an informed choice.

Sheila Nicoll, FSA director of policy, said: "For some people packaged accounts represent good value and convenience. But in other cases customers may find that the insurance cover they have paid for is useless.

"We are concerned it may be too easy at the moment for firms to sell customers something they do not understand or need. We want to make sure that packaged accounts are only being sold to customers who have actively decided it is the right product for them."

The FSA is proposing that banks and building societies selling insurance as part of a packaged account must:

? Check whether the customer is eligible to claim under each policy and share that information with them;

? Provide customers with an annual eligibility statement prompting them to check whether their circumstances have changed and whether the policies continue to meet their needs;

? Make sure sales advisers who recommend a packaged account establish whether each policy is suitable for the customer and alert them if some are not.

Consumer body Which?, which believes that most packaged accounts do not offer good value to customers, welcomed the proposals.

"You've got a bundle of insurances within these packages that often people don't use at all," said Vera Cottrell, principal policy adviser at Which?.

"There are also cases where people cannot claim on the insurance they have taken out because, for example with mobile phone insurance, they haven't registered their mobile phone number with their bank when they opened the account, but they were not made aware that this was a requirement."

She added: "It is very important that this does not become the next PPI [payment protection insurance] scandal."

In April 2011 the banks lost a legal battle over the misselling of PPI, and have since had to pay billions of pounds in compensation to millions of customers. One criticism levelled at the FSA at the time the scandal broke was that it did not act quickly enough.

The Financial Ombudsman Service, which deals with customer complaints about the financial services industry, said it sees a steady flow of about 150 complaints a year regarding packaged accounts.

Some of these are about insurances that the customer cannot claim on, but others are from customers who appear to have been pushed into buying a package, or who have been signed up to them without realising that they had to pay for them.

"It is right that the FSA looks at whether customers are getting a fair deal on packaged accounts. We have raised our concerns with the FSA that many consumers may have been mis-sold accounts, which mean they pay for extras they don't actually need or use," said Sarah Brooks, director of financial services at Consumer Focus.

"The last thing this market needs is another mis-selling scandal following on from PPI."

Despite the controversy surrounding packaged accounts, many of those in the industry, including Which?, believe the insurance elements in some accounts can offer good value when compared with the wider market.

"I do think that if you pick the right packaged account with the right benefits for you it can be a good deal," said Andrew Hagger of price comparison service Moneynet.

"Banks and building societies have also improved the insurance elements of their packages and some are already writing to customers asking them to make sure the package meets their needs."

The FSA is also consulting on how to improve the price transparency of the accounts. Which? wants banks and building societies to publish the cost of each individual component of a packaged account so that customers can compare like-for-like in the wider market.

However, because firms buy insurance policies wholesale and offer them at discounted rates in the overall package, the FSA is not convinced this is the right approach.

The British Bankers' Association said in a statement: "All account details are openly available on bank websites or on request. Customers should also remember that no one needs to pay for a current account and there is no need to switch if you are happy with the account you have.

"Our members will now be considering the consultation paper carefully and will respond fully in due course."

Lisa Bachelor