Friday, November 11, 2011

Are packaged accounts the new mis-selling fiasco?

Many of us will be familiar with the mis-selling of Payment Protection Insurance – known as PPI – on personal loan products, but now a new mis-selling scandal could be brewing over sales of PPI for packaged accounts.

A packaged account is one that typically offers the holder a current account along with a variety of insurance policies such as travel, breakdown, mobile phone cover and ID theft.

The deal may also include preferential terms on other financial services such as a personal loan, or on non-financial services and products.

It's thought that 20% of British adults hold a packaged account, making them a popular financial product and there is more variety than ever, with the number of accounts available nearly doubling over the last four years.

Now, keen to avert another scandal after the mis-selling of PPI on personal loan products, the City watchdog, the Financial Services Authority (FSA), has stepped in and published proposals aiming to safeguard customers from buying packaged accounts that they don't understand or need.

Under their proposed guidelines, banks and building societies that sell insurance products as part of packaged accounts need to check if each individual customer would be eligible to make a claim against the insurance policies included and share the information with the customer.

They would also need to give customers a yearly eligibility statement to help them decide if the policies still meet their needs and make sure that sales advisors establish if each policy is suitable, telling the customer if some parts are no longer appropriate.

The FSA has also said that customers who have already bought a packaged account may be able to reclaim the money if it included policies that they didn't need or if the package wasn't properly explained.

Consumer groups believe that often people buy a bundle of insurances that they don't need or use and their research shows that paid-for extras aren't used by one third of customers.

They also deal with cases where customers try to claim on a policy but then can't. For example, they didn't register their mobile number with the bank when the account was opened, but hadn't been told this was necessary to make a claim.

There are also other customers who report that they have been pushed to buy a packaged account or even those who have signed up for a packaged account without realising they had to pay.

Of course, PPI on a personal loan wasn't inappropriate for everyone and none of this means that packaged accounts are all bad. For some people, if you choose the right account with the right benefits for you and your family, they can be good value.

If you have a mobile phone, travel more than once or twice a year and have a car, then it could be a good choice. You can do a price comparison to identify the best one for you and, as with any financial product, such as a personal loan, remember to read the small print.

Check if there is any tie-in into the account and review it every year to make sure that all the benefits are still relevant.

It is, of course, still possible to have a free current account, so don't be swayed by the headline figure of the value of the package account benefits unless you definitely think you will use them.

Following the mis-selling of PPI on personal loan products, the banks are now carefully considering their response to the consultation paper.

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