Packaged accounts: the complaints banks are trying to ignore

New figures from the Financial Ombudsman Service reveal packaged current accounts are fast becoming an area of concern for two major reasons.

Payment protection insurance may still dominate the Financial Ombudsman Service's workload, but the Ombudsman has also admitted concern about the growing number of complaints about packaged current accounts.

The latest figures from the Financial Ombudsman Service (FOS) have revealed a significant rise in the number of complaints about packaged accounts. It's currently receiving around 70 complaints a week about the accounts, compared to around 40 a week last year.

Indeed, since April the Ombudsman has received 1,440 new complaints about packaged accounts, compared to just 1,629 in the whole of the last financial year.

What is a packaged current account?

A packaged current account is a bank account that offers a package of extras in exchange for a monthly fee.

So for example you might pay £10 a month for an account that includes things like travel insurance, breakdown cover, a film streaming service or money off days out. It's a good idea to sit down and work out how many of the added extras you're likely to use – and what they would cost if you bought them independently – in order to establish whether a packaged account is a good idea for you.

What we are complaining about

There are a number of different reasons that packaged accounts have got us in a tizz.

For starters, there's the insurance that's often included with packaged accounts. According to the FOS, when many account holders come to make a claim they realise just how limited the insurance is, with restrictions on just when a claim will be approved.

In fact, in some instances, the FOS has seen packaged accounts which were sold, despite the fact that the account holder would never have been able to make a claim on the included insurance.

Just as troubling, some complaints have centred on the account holder either being unaware of how much the account would cost, or being 'upgraded' from a free account without actually being notified. 

The success of the complaints

It would be one thing if these complaints were only succeeding in minority of cases. But the fact that the Ombudsman is finding in favour of a whopping 70% of cases tells us two very important things.

The first is banks have a lot of explaining to do in terms of how so many of these accounts were sold to people either without them knowing about it, or for whom the added extras were a pointless waste of money.

The second is the banks don't want to actually acknowledge there is even a problem here. Cases are only referred to the Financial Ombudsman if the customer's initial complaint to the bank was either not answered within eight weeks, or not resolved to the satisfaction of the complainant. 

So not only are banks flogging these accounts irresponsibly, they are also trying to sweep it under the carpet when account holders realise they have been hoodwinked.

Earlier this year industry regulator the Financial Conduct Authority brought in new rules on packaged current accounts, requiring banks to contact account holders each year to ensure the added benefits were still suitable. But that's nowhere near enough. A full overhaul of how these accounts are sold is essential if we are to avoid it becoming another lengthy mis-selling scandal.

Some examples

In its latest Ombudsman News release, the FOS has given a number of case studies of packaged account complaints. Let's take a closer look.

Age limit on travel insurance

Mrs T is 73, with grown-up children who live abroad. Mrs T saw her local bank offered a packaged account which included travel insurance and asked about it. She took out the account.

However, when she visited her daughter in Australia and fell ill, she discovered that as she was over 70 she was not eligible for cover.

After requesting the notes of the meeting between the bank and Mrs T, the FOS was convinced that it would have known full well that the travel insurance was the main reason for the interest in the packaged account and would have known she would not qualify for it.

The FOS upheld the complaint. The bank was told to pay Mrs T what she would have received from the insurer were it not for the age issue, with interest at 8% per year from the date she paid the medical expenses, plus £200 compensation.

No alternative

Miss L moved to England from Canada. When she went to open a bank account, she was told she would have to pay a fee for an account, but that it would include breakdown cover and travel insurance.

When Miss L was told by a colleague that she did not have to pay for bank accounts in the UK, she complained. The bank rejected her complaint, saying its adviser would have discussed free alternatives. However, the bank could not offer any proof of this. And its sales brochure and application form made no mention of free alternatives.

The FOS ordered the bank to give back the account fees she paid, plus interest at 8% per year. She was also given £50 compensation.

How to complain

If you feel there is an issue with your packaged current account, you will need to complain directly to your bank or building society first. It's always a good idea to put everything in writing.

If they do not respond to your satisfaction within eight weeks, you can then take your complaint to the Financial Ombudsman Service. You will need to complete a complaint form and sign it by hand. For more, read How to complain to the Financial Ombudsman Service.

Do you have a packaged current account? Was it fully explained to you before you signed up? Do some packaged accounts provide good value for money? Let us know your thoughts in the Comment box below.

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