What is a Packaged Bank Account?
A Packaged Bank Account – sometimes called a “paid-for account” – is a bank account when the bank usually charges a monthly fee in return for a range of insurance and non-insurance based benefits such as travel insurance, mobile phone insurance, vehicle breakdown cover, preferential loan or overdraft rates, emergency home callouts for tradesmen, discounts at shops or other services such as access to airport lounges.
Each bank usually has its own name or branding for these accounts to reflect the degree of benefits that are provided, also to reflect the superior nature of certain accounts – some examples are silver, gold, platinum, premier, additions plus, advantage, advantage gold.
Consumers typically pay between £5 and £25 each month for a packaged account. Around one in five adults in the UK has one of these accounts*
Packaged accounts can be a good option for many people to save them time and money in not having to purchase the benefits individually. These accounts can work well as long as consumers understand what the benefits are, how they work and how much they cost.
*FSA Consultation Paper CP12-17
Obligations of the Adviser or Sales Person for Sales of Packaged Bank Accounts
Selling insurance in the UK became regulated in January 2005. This meant that all firms had to follow a strictly prescribed set of rules controlled and regulated by the Financial Services Authority. However, before this date, all banks still had to follow a code of conduct which ensured that customers were dealt with in a fair manner and provided with information which was clear, fair and not misleading. This meant that customers had to at least receive adequate information before making a purchase to be able to make an informed decision to buy. Customers had to understand what the benefits offered, how they worked, any exclusions of cover and how much they cost.
One important factor is whether the bank gave advice or made a recommendation to purchase the packaged bank account. If a recommendation was made, the bank has to check that all insurances sold are suitable for the customer’s needs. Even if a recommendation was not made, the bank still had to provide information to allow the customer to make an informed decision about whether to take out the packaged bank account.
The rules established in January 2005 have since been revised and updated but the basic principle of treating a customer fairly and reasonably always prevails. However, the Financial Services Authority did provide specific updates in 2011 and 2012 to further strengthen the rules on selling packaged bank accounts. The Financial Services Authority wanted to ensure that the rules provide the same level of protection for consumers buying packaged insurance in the same way that they do for purchases on a standalone basis.
Some key obligations
- A firm must take reasonable steps to establish whether the customer is eligible to claim under each policy and inform them whether or not they would be eligible to claim.
- A firm must provide the customer with an annual eligibility statement that sets out any qualifying
requirements to claim under each policy and remind them to review whether they meet these.
- The investment element of the policies may not have been the best advice.
- The steps a firm must take to ensure the suitability of its advice on a policy included in the package.
How was this service mis-sold?
In cases where something went wrong with the packaged bank account sale process, consumers may feel that they have been misled or misinformed about a purchase. In other cases, consumers may not even know that they have a packaged bank account.
Here are some of the main reasons that consumers approach the Financial Ombudsman Service for assistance when they feel something has been unfair with the provision of a packaged bank account*
- Consumers did not know they had a packaged bank account.
- Consumers tried to claim on an insurance policy and found they were not covered.
- Consumers find limitations on a policy that would not be expected with a stand-alone policy.
- Consumers do not think that the pre-sale information was clear about costs, how the benefits worked and the specific benefits that were included.s
- Consumers feel that they were unfairly incentivised to have a packaged bank account in order to obtain other products when those other products were actually available on a standalone basis.
- Consumers feel that they were not made aware a packaged bank account was optional.
*Financial Ombudsman Service News Issue 112 – September 2013
Redress for mis-sold packaged bank accounts follows the same basic principle as that which applies to all financial products in putting consumers back into the position that they would have been in had they not taken out the financial product.
This means that all premiums paid will be refunded with statutory interest from the date that they were paid at 8% per annum (15% per annum if before 1 April 1993).
Statutory Interest is interest that a Court would award to compensate a consumer for being deprived of funds for a period of time. It is calculated on a daily simple interest basis from the date that of an unfair payment being made to the date of settlement by the bank.