Banks and building societies are coming under fire from the Financial Services Authority (FSA) over concerns that fee-based current accounts are being mis-sold to millions of customers.
The FSA has proposed new rules to ensure customers are eligible to claim on insurance cover before sold a packaged bank account, which can cost up to £300 a year.
Packaged accounts are current accounts that charge a monthly fee but come with extras such as free roadside recovery cover and ID theft protection.
It is estimated that one in five of the UK adult population now has one of these accounts. However, research from consumer group Which? has found that a third of consumers do not use the extras for which they are paying, wasting between £240m and £320m a year.
Under the proposals the banks and building societies selling insurance as part of a packaged account must check customer eligibility to claim when purchasing as well as provide an annual statement to review suitability. Sales advisers will be required to establish whether each policy is suitable for the customer and notify them if not.
Sheila Nicoll director of policy at the FSA, said: “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.”
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The FSA is also investigating how to improve price transparency of this type of account. The regulator highlighted that it can be difficult for customers to compare and contrast the costs with stand-alone insurance products or other bank accounts.
The number of packaged current accounts available to consumers has doubled in the last five years
According to statisticians Defaqto, there are now more packaged accounts available than free in-credit accounts. Further, the average monthly fee for a packaged account now ranges between £6.50 to £40.
Richard Lloyd, executive director at Which?, said: “People should only have a packaged account if they’re absolutely certain that it will be cheaper for them and they’ll use all of the benefits offered. Banks have a responsibility to make packaged accounts more transparent by clearly explaining what each of the individual elements are worth, so customers can compare.”
By the Telegraph
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