Packaged bank accounts – the new PPI?

The news that three of Britain’s top banks have set aside over almost £⅔ billion to pay compensation for mis-sold packaged bank accounts has prompted the question ‘could this be the next PPI?’

Barclays (£250 million), Royal Bank Of Scotland (£307 million) and Lloyds Banking Group (£175 million) appear to be gearing up to pay some serious compensation to consumers who were sold extras on their current account which were of little or no use to them.

Rising sharply

The issue has been ‘bubbling under’ for a number of years, but the number of cases has risen sharply from small beginnings and packaged accounts are now the second most complained about financial product after PPI.

Latest figures from the Financial Ombudsman Service (FOS) show they expect to receive 24,000 new cases in the year to March 2017 and to resolve an additional 3,000 from their backlog of claims.

Consumer group Which? estimate there are 9 million packaged bank accounts in the UK. They first appeared in the 1990s, but have grown in popularity since.

Extras

Customers are sold a bundle of ‘extras’ on their accounts for between £5 and £25 a month, which include things like roadside breakdown cover, mobile phone and holiday insurance. They worked for some people, often offering substantial discounts on similar stand-alone policies and services.

But they were also mis-sold because the products offered were unsuitable for the customer and/or the deal was not properly explained to them.

Complaint

One of the worst examples quoted was a complaint by the MacMillan cancer charity who said they had been approached by a number of cancer sufferers who were sold travel insurance within a packaged account, but were not told the policy would not cover them if they tried to use it.

Grounds for complaint have included:

  • Consumers not wanting or realising they actually had a packaged account after the bank upgraded their account without telling them
  • Consumers not fully understanding how much the account was costing them
  • Additional extras not being applicable or useful to the consumer

The potential amount recovered will depend on how much the customers pays a month and how long they have owned the account, but the average payout for a claim is around £1,400.

Rules

The rules governing the sale of such accounts were tightened in March 2014 and now banks must make sure their customers are eligible to claim under each policy offered in the package. They are also required to check annually whether the customer is still eligible to use the benefits.

The British Bankers’ Association (BBA) admitted that mistakes were clearly made in the past, but said the industry had responded by implementing the new rules.

Questions

The Financial Conduct Authority (FCA) says consumers should ask the following questions before signing up for a new account or, if they already have one, to consider cancelling it if they don’t qualify:

  • Will you get use out of each of the benefits included, or do you already have them elsewhere?
  • Check with the bank or building society that you are actually able to claim on any insurances included in the package
  • Compare the cost of the package against what it would cost you to buy each item you expect to use separately.
  • Check whether or not you need to activate benefits or register your details before you are covered.
  • Have your circumstances changed so you may no longer be able to claim on an insurance policy included in the package?

BBA spokesman Rob Watts said: “There has been a big change in the way these things were sold. Now you have to have all the bells and whistles explained to you at the point of sale when you -take up a packaged account.

“You also get an annual statement setting out those benefits, seeing if they are still working for you. It’s very important customers do look. Talk to your bank.”