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ombudsman news

issue 112

September 2013

case studies - packaged bank accounts

Packaged bank accounts - sometimes called "paid-for" accounts - usually charge a consumer a monthly or annual fee. These accounts can be called a lot of different names - gold, premium, upgraded, reward - but the thing they have in common is that they usually include a range of insurance and non-insurance benefits.

A typical account might include travel insurance and mobile phone insurance - as well as car breakdown cover, preferential rates on overdrafts or loans, use of airport lounges, and discounts on various products and services.

Consumers usually pay between £5 and £25 each month for an account.

Packaged accounts can be a good option for many people - saving them time and money. They can work well as long as people know what the benefits are, whether they can use them and what they have to pay for them.

But sometimes things go wrong. When consumers come to us with a problem involving a packaged account, they often tell us they didn't know they had one. Others say they knew they had the benefits - but hadn't realised they were paying for them.

We also see complaints from consumers who tried to claim under an insurance policy included in their account, and found they weren't covered - perhaps because of an age limit or an exclusion for a "pre-existing" medical condition.

Sometimes we hear from consumers who have come across other limitations in the policies included in their packaged accounts. Often, these limitations are things they perhaps wouldn't have expected to find in a "stand-alone" insurance policy. For example, sometimes the item had to be bought using the packaged account.

As the following case studies show, we look at the evidence to establish what happened when the account was opened. We usually look at whether the bank gave the consumer advice or a recommendation - and if so, whether it did enough to make sure that any insurance policies it recommended as part of the account were suitable for the consumer's needs.

Regardless of whether the bank gave advice, we will look at whether it gave the consumer clear information about the cost of the account, how it worked, and the specific products that were included - to allow the consumer to make an informed decision about whether to open the account.

In those cases where we decide that the bank had acted unfairly, we look at the broader circumstances to decide what it should do to put things right.

issue 112 index of case studies

  • 112/7 - consumer complains the bank did not tell her about the age limit on her travel insurance - part of her packaged bank account
  • 112/8 - consumer complains his bank told him he had to have a packaged bank account to have his loan application approved
  • 112/9 - consumer complains that her bank did not tell her that a paid-for bank account was optional
  • 112/10 - consumer complains that his packaged bank account was not explained to him - and that he has not benefited from it
  • 112/11 - consumer complains he did not know he had a packaged bank account - and that the bank upgraded his account without his consent

112/7
consumer complains the bank did not tell her about the age limit on her travel insurance - part of her packaged bank account

Mrs T was 73. She was retired and her three children lived abroad. She often went to see them, and travelled regularly in the UK as well.

When Mrs T was in the local branch of her bank, she noticed that they offered a current account that included travel insurance. She thought one of these accounts would be perfect for her - so she asked an adviser about opening one.

Mrs T explained that she was interested in opening an account that came with travel insurance. She said that in the past she had always taken out stand-alone travel insurance when she went away - for about the same cost as the account fee. The adviser set out the details of the account, and Mrs T opened one straight away.

A few months later, Mrs T went to visit her daughter in Australia. Unfortunately, while she was there she became ill - and needed to be taken into hospital. She phoned her travel insurer to talk through what was happening - and to arrange for it to cover her medical expenses. But the insurer said it would not pay the claim because Mrs T was over 70 years old - and so wasn't eligible for cover under the policy. Mrs T paid her medical expenses herself and, once she had recovered, carried on with her holiday.

Soon after she got home, Mrs T complained to her bank. She said that the bank had known that she was over 70 years old when she had upgraded her account. She said she could not have made it any clearer that she was planning to use the travel insurance that was included in the package. And she pointed out that the adviser she had spoken to had not said anything about age limits on the travel insurance policy.

The bank rejected Mrs T's complaint. It said she would have been sent a welcome pack when she upgraded her account - which had set out the terms of her policy.

Mrs T thought the bank's response had missed the point. So she referred her complaint to us.

complaint upheld

We asked the bank to send us its notes from the meeting during which Mrs T had upgraded her account. These notes said that Mrs T had wanted the packaged bank account because it included travel insurance - and that she travelled often.

We were satisfied that the bank would have known that Mrs T was over 70 when it upgraded her account. And even if the bank hadn't known, the age limit was an important restriction on the travel insurance policy - so we felt the bank should have drawn it to Mrs T's attention. We did not think sending her a folder of information was enough.

We also thought that if Mrs T had been aware of the age restriction on her policy, it was likely that she would have arranged travel insurance elsewhere that didn't have the age restriction - at a similar cost to the account fee and on similar terms. We also thought that she would have been unlikely to have taken out the packaged account.

The insurer told us that it would have paid Mrs T's claim if it hadn't been for the age restriction. So we told the bank to pay Mrs T the amount she would have received with interest applied at a rate of 8% simple per year from the date she paid the expenses to the date the complaint was settled, plus £200 to compensate her for the distress and inconvenience that she had been caused while she was ill in Australia.

112/8
consumer complains his bank told him he had to have a packaged bank account to have his loan application approved

Mr M's daughter had recently been offered a place at university. He wanted to help her out as much as he could, and decided to take out a loan to pay her accommodation fees.

Mr M phoned his bank to ask about a loan. The adviser told him that because he had a packaged account, the bank should be able to give him a "preferential interest rate".

Mr M was confused. He asked the adviser to explain what she meant by a "packaged" account. When she told him what the account included, Mr M said that he remembered opening an account like that many years ago when he had taken out a loan. Mr M said that at the time, he had thought he needed to open the account to make sure his loan application was successful. But he had also thought the monthly payments for the account would stop once he had paid off his loan.

Mr M felt that he had been misled by the bank, and he complained. The bank insisted that the terms of the account would have been made clear to him when he took it out.

But Mr M was still unhappy, and he decided to bring his complaint to us.

complaint not upheld

We asked the bank to send us its records for Mr M. These showed that five years earlier, Mr M had opened a packaged account - and six months after that, had taken out a loan. There were no records of any loan applications or earlier packaged accounts before then. We noted that Mr M had paid off his original loan after three and a half years.

We asked the bank for a copy of the letters that Mr M was sent at the time he took out the packaged account, at the time he took out the loan, and at the time he paid the loan off. We saw evidence that the terms and conditions of the packaged account had been sent to Mr M - and noted that the accompanying letter had clearly and prominently stated that he would pay a monthly charge unless he "downgraded" his account.

We could see nothing to suggest that the bank had told Mr M that he had to take the account for his loan application to be successful.

We checked to see whether Mr M had asked to change his packaged account at any point. We were satisfied that he hadn't.

Taking everything into account, we were satisfied that the bank had not told Mr M that he had to upgrade his bank account to get a loan.

We also looked into whether Mr M had been given enough clear information to make an informed decision about whether to upgrade his account. We thought some of the information he had received could have been clearer.

However, we noted that Mr M had benefited from the packaged account - because he had received a better interest rate on his loan. The saving he had made was more than the amount he had paid for the account. So in these circumstances, we did not uphold the complaint.

112/9
consumer complains that her bank did not tell her that a paid-for bank account was optional

Miss L lived in Canada, and moved to the UK when she got a job in London. Soon after she arrived, she went into her local branch of a bank to set up an account.

Miss L had a meeting with an adviser in the branch and opened a paid-for bank account. The account included car breakdown cover and travel insurance. The adviser explained that Miss L would need to pay a monthly fee for the account - but Miss L wasn't surprised, because she had always had to pay a fee for her bank account in Canada.

A few months later Miss L was chatting to a colleague. He said that you don't have to pay a fee for a bank account in the UK. So Miss L went back into the branch and asked to change her account to a free one.

She was annoyed that she had to waste time going back into the branch to change her account - and she complained to the bank. She said she hadn't been offered any alternative to the paid-for account.

The bank rejected Miss L's complaint. It said the adviser she spoke to would have told her about the free accounts available to her.

Miss L didn't think that was right, so she asked us to investigate.

complaint upheld

We asked the bank to send us all the documentation from around the time Miss L had opened the packaged account. The bank sent us a copy of the brochure and the application form that Miss L had signed. These made no reference to free accounts - and the bank couldn't point to any other evidence to show that Miss L had been told about an alternative account.

We noted that Miss L did not have a driving licence - or a car. So we couldn't see why breakdown cover would have been of any use to her. And she told us that because she had just come over from Canada - and was getting to know a new city - she didn't have any plans to travel anywhere in the near future.

In these circumstances, we decided that Miss L would probably have opened a free account if she had been told about one. We told the bank to refund the account fees that Miss L had paid - with interest applied to each one (at a rate of 8% simple per year from the date she had paid it to the date the complaint was settled). We also told the bank to pay Miss L £50 to compensate her for the inconvenience of having to go into the branch to sort things out.

112/10
consumer complains that his packaged bank account was not explained to him - and that he has not benefited from it

Mr B had been with the same bank for four years. The bank wrote to him and offered him a "personal finance review" - a meeting with an adviser to talk about how they could work together to "help meet his lifestyle goals".

Mr B accepted and made an appointment to meet up with an adviser at his local branch. During the subsequent meeting, Mr B signed up to a packaged bank account and ticked the form to say he had been given a welcome pack.

A year later Mr B heard a phone-in on the radio about the pros and cons of packaged accounts. This made him wonder whether paying for his account was worth it.

Mr B phoned the bank to find out more about what he was paying for. An adviser explained what was included in his packaged account. But Mr B said that when he opened the account, he'd felt he hadn't been given a clear enough explanation of the benefits. The adviser said that she couldn't deal with that there and then, but that if Mr B wanted to complain more formally, the bank could look into things more thoroughly for him.

So Mr B complained, and a few weeks later the bank wrote to him in more detail. The bank turned down Mr B's complaint. It said that the adviser would have explained how the account worked - and pointed out that it had sent him a welcome pack that set out what was included. It also said that he had benefited from the features included in his account.

Mr B was not happy with this response - and he asked us to look into his complaint.

complaint not upheld

We looked at all the evidence from Mr B and the bank to help us understand what was included in the account - and what Mr B had understood about the benefits.

First we looked at the mobile phone and gadget insurance part of the package. Mr B confirmed to us that he had a mobile phone and a laptop - and that he had wanted them to be covered. It seemed likely either that the adviser had explained the cover to Mr B, or that he had read the brochure that set out the features and benefits of the account - because soon after Mr B had opened the packaged account, he had followed the instructions to register his mobile and his laptop for the insurance policy.

We then looked at the breakdown cover element. We noted that Mr B had a car. And the bank sent us evidence showing that he had in fact used the breakdown cover. So again, it was clear to us that Mr B had understood he had the cover in place - and had a need for breakdown cover.

We also checked to see whether the welcome pack that Mr B had received had set out the details of the account clearly. We were satisfied that it had.

In these circumstances, we were satisfied that Mr B had been able to make an informed decision about whether to open the account. If Mr B had been given advice, it was not unsuitable for him in his circumstances. So we did not uphold the complaint.

112/11
consumer complains he did not know he had a packaged bank account - and that the bank upgraded his account without his consent

Mr F had been struggling financially for a few years. He had been using his overdraft each month - and thought the monthly fee he was paying was a fee for having an overdraft. Eventually, he managed to clear his overdraft and get back into credit. But when he checked his bank statement, he noticed that he was still paying a fee to the bank each month.

Mr F phoned the bank to ask why he was still paying them a fee. An adviser told him that he had an upgraded premium bank account. He said he had never even heard of this type of account - and that he certainly hadn't asked for his account to be changed.

Mr F pointed out that he had been struggling with his money for a long time - and that he couldn't understand why the bank had been making things harder for him by charging him for his bank account.

The bank turned down Mr F's complaint. It said that he had been a "premium customer" for a number of years - and that he would have been sent a welcome pack shortly after he agreed to the upgrade.

The bank pointed out that the account fees had been itemised on Mr F's statements each month for years - and that they would have expected him to have mentioned a problem sooner.

Mr F did not recall anything about an account upgrade - so he got in touch with us to ask us to look into it.

complaint upheld

The bank could not tell us much about what had happened when Mr F's account was upgraded. It couldn't send us any evidence to show that Mr F had agreed to the upgrade - or a copy of the welcome pack that it said he would have been sent.

However, the bank did send us sample letters it said would have been sent to Mr F over the years. These included updates on the account and changes to the benefits that were included. But the bank couldn't show us any evidence that these letters had actually been sent to Mr F - and Mr F said he did not remember receiving them.

In any case, when we looked at the sample letters, we were not satisfied that they were clear enough - or that they were sent often enough - for a customer to be sure what sort of account they had and which benefits this entitled them to.

In these circumstances, we could see why Mr F might have been confused about his account. We could also understand why he might have thought for a long time that he was paying for an overdraft - rather than for a paid-for account.

To sort out this case we had to decide what we felt Mr F would actually have done if he had been given enough clear information at the time his account was upgraded.

Mr F sent us evidence to show that he had been paying for separate breakdown cover and travel insurance as well as his paid-for account. Given his tight finances, we could not see why he would have done this knowingly. We noted that the interest rate Mr F had paid on his overdraft with the packaged account was the same as he would have paid with a non-fee paying account.

In these circumstances, we told the bank to refund the account fees that Mr F had paid - minus the overdraft fees - with interest applied to each one (at a rate of 8% simple per year from the date he had paid it to the date the complaint was settled).

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.