For some years, the media has labelled packaged bank accounts as ‘the next PPI’ suggesting this could be yet another regulatory scandal of epic proportions. For risk managers in retail banking, it must have felt like sitting on a tinderbox.
Judging by the most recent reports, it appears risk managers can be allowed a sigh of relief, as while these products are still seen as problematic, a debacle of PPI proportions is likely to be avoided.
Packaged bank accounts – the basics
For those not in the know, these products operate as current accounts but with a charge that can range from around £5 to £25 a month and include a range of ‘goodies’ such as:
- Travel insurance
- Gadget insurance
- Car breakdown cover
- Preferential rates on loans, overdrafts and travel money
- Cash back on utility bill payments
Complaints remain a concern
But, these accounts largely need to be sold, since few customers actively choose to take them out and in 2013, the FCA conducted a thematic review into packaged bank accounts. Following this, it introduced new rules.
And while retail banking risk managers will have seen tighter sales standards and eligibility criteria for insurance as a result, more still needs to be done.
The latest FCA figures show packaged bank accounts are the fifth most complained about product with just over 172,000 complaints. However, there is some comfort that this still only makes up around 6% of all complaints. In contrast, the total number of PPI complaints was 895,000.
Next, the Ombudsman said that complaints about packaged bank accounts fell last year from 44,244 to 20,284. Of these, it said claims management firms brought some 37% of these complaints. In such cases, it could be said that the customer is more likely to be ‘chancing their arm’ to obtain compensation rather than have a major gripe with the product.
Eligibility must be the focus
There are more than a few crumbs of comfort in that the FCA has not castigated packaged bank accounts too severely. Indeed, it has said: “there is a place in the market for packaged bank accounts, as they can provide good value and convenience for consumers.” Further, consumer champions Which? agreed: “packaged bank accounts can be good value for consumers, providing they make use of the benefits they are paying for.”
Still, there can be no lax attitudes and proper questioning is crucial. For example, the travel insurance may have a cut-off point of 70 – older customers are therefore ineligible to claim. Those with pre-existing health conditions may also be unlikely to claim. Breakdown cover is going to be useless for someone who does not drive and mobile phone insurance is a pointless duplication if someone has already purchased it from his or her tariff provider.
The new rules also mean that banks must send out annual statements to customers, reminding them to check their eligibility.
Customers have obligations
Risk managers will know that there remains work to be done, and the FCA has warned on continuing problems with sales standards and complaint handling.
But, it has also been pointed out by the Ombudsman that mis-selling is not always an issue. So if someone has taken out a packaged bank account and then decided it is poor value for money because they do not use the services, the bank is not to blame. There is clearly a duty on customers to decide for themselves if they need and will benefit from the add-ons offered through the package.
Consumer understanding is core
The sales processes need to be fair – there have been accusations that some consumers have been told they need an account to obtain an overdraft, for example. While it might mean a slightly better rate in some cases, those with free current accounts should also not be denied access to overdrafts.
Good processes, proper recording and training will all ensure that packaged bank accounts do not go the same way as PPI – and while this sector is not yet out of the water, there appears to be every chance that risk managers will not be left drowning in a sea of complaints.