Why were Packaged Bank Accounts Mis-sold?

The Financial Conduct Authority (FCA) conducted a report in 2012 in to the way that the Banks promoted and sold Packaged Bank Account facilities.  This was as a result of a number of complaints that had arisen from individuals (through firms and other organisations) into the way that their facilities had been promoted to them.

The wide-ranging study went a certain distance to ascertain that the accounts themselves needed to be tidied up and that many were mis-sold, or not appropriately promoted to clients in order to afford them the protection that they were required, by Law, and through the regulation provided by the Financial Conduct Authority.

The report was published and the Banks began to make some changes.  However, these changes did not become noticeable until complaints started to appear.  Now the Banks are facing the prospect of having to address another mis-selling scandal on the back of the Payment Protection Insurance scandal where, at present, they are reviewing thousands of complaints concerning the mis-sale of these Packaged Bank Accounts on a weekly basis.

Packaged Bank Accounts are primarily a way for the Banks to generate revenue from clients who otherwise would have a fee-free account.  The Banks have always wanted to charge for a current account and this is the perfect mechanism to do so.  They have not provided clients with the opportunity of a related free account product, and instead sold the product in such a way that they glossed over the various benefits and whether they would be of any relevance to clients whatsoever.

One of the main areas that the Financial Conduct Authority has highlighted with regard to the mis-sale is the fact that the account was promoted with a monthly fee being the target of the advertising.  Therefore, as a customer, you would see that the account would cost £15 per month and you were being told by the Bank that you had to have it.  So, at £15 per month, let’s face it that does not seem like too much money.  However, what people do not realise is that the annualised fee at £15 per month, brings the figure closer to £200 per year (when you factor in all the lost interest and other costs as a result of not having this money in your account).

If you were presented with the reasons why you should have the account and then told you should pay £200 per year for it, you would probably turn around and say no, as it would not be of any benefit to you.

The fact that free accounts are not offered is also one of the other areas that the Financial Conduct Authority has not been happy with.  Fee free accounts have always been a mainstay of an individual’s rights and the Banks have taken whatever opportunity they can to move the fee free accounts to one side at whatever opportunity.  They do not like to operate them because, of course, they do not provide any money for the costs in setting up the account.

There are various benefits attached to a Packaged Bank Account facility, but these benefits again may have no use or may have in fact been duplicated with other forms of cover, such as roadside assistance and mobile phone cover which is attached to the majority of most home contents insurance.

Again, the Banks did not fully explain the various benefits and what the client should do in order to benefit from them, i.e. by registering them, as they are required to do.   They also did not establish if there were already “like” benefits that the client already enjoyed with another third party, which would of course have negated the benefit of the Packaged Bank Account facility and weakened the value of how much they had to pay.