On 27 October 2011, the Financial Services Authority (“FSA”) published a Consultation Paper concerning “packaged” bank accounts; it has proposed changes to the Insurance Conduct of Business Sourcebook (ICOBS) rules to cover the sale of these accounts.

Packaged accounts usually charge customers a monthly fee of anywhere between £5 and £50 for added benefits such as travel or mobile phone insurance or free airport lounge access, ticket discounts or commission free foreign currency. It has been estimated that there may be as many as 9 million active packaged current accounts in the UK, covering 1 in 5 of the adult population.  

The FSA is concerned that although some customers may get value from the packaged accounts, others may not; an FSA sspokesperson said that at the moment it may be too easy for firms to sell customers something they do not understand or need and wish to ensure that packaged accounts are only sold to customers who have actively decided it is the right product for them.  

Therefore, the FSA is proposing new rules to ensure that banks and building societies properly check that customers are eligible to claim on insurance cover before selling them as part of a packaged bank account.  

The FSA’s proposals are that firms selling insurance policies as part of a packaged bank account must:

  • Take reasonable steps to establish whether a customer is eligible to claim the benefits under each policy.
  • Throughout the term of each policy, provide customers with an annual eligibility statement, prompting them to check whether their circumstances have changed and whether the policies continue to meet their needs
  • If the sales adviser is recommending a packaged account they must establish whether each policy is suitable for the customer and tell them if some are not. They must also keep a record of the suitability assessment and the advice given for each sale for at least 3 years.  

The FSA has also said that it wants to explore the question of price transparency for packaged accounts and has asked for suggestions on how to achieve this in a way that helps customers shop around.  

FSA has asked firms to respond to its Consultation Paper by Friday 27 January 2012 and then expects to issue a policy statement with final rules and eligibility, suitability and proposals in relation to price transparency in July 2012.  

At the moment, the Financial Ombudsman Services are receiving around 100 – 150 complaints about packaged accounts each year. This is, of course, a modest number in comparison to its caseload for other insurance mis-selling complaints like payment protection insurance. Unlike payment protection insurance, we believe that mis-selling of packaged accounts is unlikely to generate the same publicity or criticism as lenders will have detailed procedures in place to ensure mis-selling does not take place. It also remains to be seen whether such complaints will also generate claims in the Courts. Our view is that, given the quantum of such complaints and the nature of the allegations made, such claims, if brought before the Courts are more than suitable for the small claims track. The financial incentive for claims management companies and their solicitors to take on such claims is therefore reduced given the very limited legal costs that can be recovered on the small claims costs.