Choosing a bank account used to be a simple process. One would just pick the account with the best interest rates and sign up for the account. However, times have changed, and banks now look to sweeten the deal with a packaged bank account.
A packaged bank account is an ordinary bank account that comes with a whole host of special perks on top of the normal account services, and at a fee as well. Agree to pay an extra £10 per month on the account, and one can receive extra perks like mobile phone insurance, travel insurance, flexible overdraft facilities and even discounted subscription to movie rentals.
On paper, these package accounts look quite appealing if you can afford them. However, if the deal is too good, you should probably think twice. That is the realization customers are waking to now, as increased number of complaints to financial regulatory authorities has arisen in mis-sold packaged account settlements and compensation awards.
The office of the Financial Ombudsman, charged with settling any issues that arise between banks and their customers, published figures in January 2014 that showed an exponential rise in the number of customers who were unhappy with the package bank accounts mis-sold to them. The office reported that as many as 20 people a day seek compensation for the bad accounts, with most of them turning to the Ombudsman after their banks had rejected their pleas. For it's part, the ombudsman's office has ruled in favor of the customer 80 percent of the time, with compensation averaging about £1300 for customers who had used the account for years.
It is believed that the true number of mis-sold package bank accounts sent to actual banks could number more than 400. This is because the cases referred to the ombudsman's office represent a small percentage of the actual total.
The uptake for package bank accounts is high, mainly due to a major push by the banks to increase sales of the accounts. All major banks offer packaged bank accounts, and customers pay anywhere between £3 and £30 a month to enjoy the extra benefits. For banks, putting up the extra benefits costs little, and are thus understood to make a large profit out of the packaged bank accounts.
To make sure the accounts were being sold, banks offered incentives to sales staff in order to meet and exceed high sales targets, most of the time at the expense of more appropriate banking products. As a result, staff mis-sold the accounts, a decision that is now coming back to haunt banks.
In some instances, customers were led to believe that opening a packaged account would make them eligible for loans or cheap mortgages. Others had their accounts upgraded to the "package" status, sometimes without their knowledge. Some were even told opening a package bank account was the only way to get an account.
Natalie Cheeney, the chief ombudsman, explains that her office has been concerned about the packaged accounts for a while. She says, "Packaged bank accounts have been sold for roughly a decade. The ombudsman service has been concerned for a while, for a range of reasons. And customers are now looking at what they are buying and thinking, good grief, have I been paying for this for the last five to six years?"
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