7.5 million of us pay for accounts with perks. Banks charge up to £300 a year but FSA says extras are a rip-off.

Bank Rip-Off

Fee-charging bank accounts have come under scrutiny from the City ­regulator, over concerns about a widescale rip-off.

For six months, the Financial Services Authority (FSA) has secretly been forcing banks to come clean over the way so-called packaged accounts are being sold.

Money Mail has seen confidential ­documents from behind-closed-doors ­discussions between bank chiefs and the City regulator.
These make it clear the FSA shares the concerns of consumers groups about the way these accounts are being sold, and that customers are being charged too much for questionable benefits.

An estimated 7.5million people have a packaged account – around one in seven of the UK population.

They are charged between £60 and £300 a year for an account that comes with a range of ‘perks’. These often include travel ­insurance, car breakdown cover, mobile phone insurance and an interest-free overdraft.

As part of its probe, the FSA has demanded evidence about the way branch staff explain the perks on offer, the quality of insurance cover offered and whether ­customers ever actually use what they pay for.
In some cases, banks have been forced to change their accounts.

For example, on its Reward and Premium Current accounts, Santander has improved its insurance policies for keys, mobile phones and identity protection, because the original cover was worse than that available from stand-alone policies bought through its branches.

It is understood one bank has been forced to offer refunds to customers who should never have been sold packaged accounts.

The number of these accounts has increased as banks have tried to lure ­customers away from free accounts. In 2009 there were 38; today there are 43.

Critics argue the perks can be bought more cheaply elsewhere, and that the insurance offered is littered with small print to ­prevent customers claiming — clauses that would not be found on ­paid-for policies.

In some cases, banks have sold the accounts even though ­customers already have similar insurance bought through the same bank.

As a result of the investigation, some banks have made improvements ensuring that customers will:

Be asked about existing medical ­conditions before being sold an account, because these could ­prevent them claiming at a later date;

No longer need to register to claim perks; n get one reminder a year of the cost of their account and its perks;

Be reminded of the need to notify the bank of changes in their personal circumstances;

Be told when they become too old for insurance cover; and Get warnings if they have duplicate insurance.

The FSA first warned about packaged accounts last March.

It’s annual Financial Risk ­Outlook statement said: ­‘Packaged accounts may offer value for money for some ­consumers, but they may not ­benefit all.

‘Consumers would be better off purchasing products individually, or not at all.’

Last year, Money Mail revealed how NatWest refused to pay ­compensation after selling a ­packaged account with travel and mobile phone insurance, car breakdown cover and ­discounts to theme parks to a 91-year-old who did not have a passport, a mobile or a car.

Lloyds TSB refused compen­sation to Latvian mushroom picker Ilze Moskvina after selling her a ­Silver Account costing £7.95 a month. In another case, more than 100 poorly-paid migrant ­workers in the North-West were sold unsuitable ­packaged accounts.

Five years ago, a handful of banks, including Barclays, were forced to refund hundreds of ­customers who had been put into a packaged account and charged a monthly fee without their knowledge.

It is understood FSA ­meetings with bank chiefs have been ‘open and constructive’.

The findings of its review and a possible consultation may follow later this year.

A spokesman for the FSA says: ‘We have stated before that ­packaged accounts can have real ­benefits for some customers, but they do not suit everyone.

‘They are complex products and the FSA is carrying out analysis of this market, ­including consumer research, and is ­working closely with firms to see where and how improvements need to be made by the industry.

‘Because of this work, changes are already taking place.’

Many packaged accounts offer worldwide travel ­insurance, mobile phone insurance and car breakdown cover.

For this they charge up to £300 a year.

You can buy annual travel insurance for less than £50 from Debenhams, Insurefor.com, Club Direct.com and Direct Travel ­Insurance.

Car breakdown cover can cost less than £30 with the likes of Tesco and Green Flag.

Mobile phone insurance can cost less than £25 a year with Talkcover.co.uk

Other perks – such as identity fraud cover, ­discounts on entertainment, extended warranties, home emergency cover and ­air-port meet-and-greet ­services – have limited value to most people.

Beware of free will-­writing offers because banks often nominate their own executor services, which tend to be expensive.



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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.