Watchdog’s clampdown on paid-for current accounts

The new rules follow fears that some customers have been throwing money “down the drain” in monthly fees for accounts with add-ons such as travel or mobile phone insurance or car breakdown cover which later turn out to be useless to them.

From tomorrow, financial institutions will be forced to check whether a customer is eligible to claim under each policy as part of the new “packaged” account rules introduced by the Financial Services Authority (FSA).

They will need to share this information with their customers and alert them to policies where they are not covered.

Annual statements will also be sent out so that people can check whether the account still suits their needs if their circumstances have changed.

Packaged accounts are held by a fifth of adults in the UK and some charge about £300 a year.

But the FSA found that a “key risk” with the accounts is that customers assume they are covered by a policy, only to discover that they are ineligible when it is too late.

Regulators want to make sure that customers are given the same level of protection they would have had if they had bought the products separately.

The rules will be overseen by new regulator the Financial Conduct Authority (FCA), which replaces the FSA from Monday and has promised to use its new powers to force firms to put customer needs at the heart of their businesses.

FSA director of policy Sheila Nicoll said of packaged accounts: “These products are often referred to as upgraded accounts but if you end up paying for an element you can’t claim on, it’s money down the drain.

“The new rules will make sure customers know what they’re buying and that they can rely on the product or have the limitations explained before buying.”

The Financial Ombudsman Service receives about 60 complaints a week about packaged accounts and three-quarters of these are about the way that the policy was sold. The service said that many complaints centre around customers who try to make a claim on a travel insurance policy, only to find that they do not qualify.

Other complaints to the ombudsman are from people who did not even realise they had a packaged account and the charge has shown up on their statement as an “administration fee”.

Firms buy insurance policies wholesale and offer them at discounted rates in the overall package, making it hard for customers to compare costs.

Consumer group Which? recently found that one in six of its members with packaged accounts said they had only upgraded to a fee-charging account after being pressurised by bank staff.