It's looking more and more like paid-for current accounts could be the next mis-selling scandal

Banks are running scared.

The headlines are pretty stark. Paid-for currents accounts could become the next bank mis-selling scandal, according to almost identical headlines in the Daily Mail and the Telegraph. The source for this gloomy prognosis is the annual report from the Financial Ombudsman Service (FOS). According to the FOS, it has received a record number of complaints from customers unhappy with their paid for current accounts or packaged accounts.

So just how many people did complain about their packaged current account  - or added value account (AVA) as banks prefer to call them - in the past 12 months? The answer is the grand total of 1,629. Not good, but hardly on the scale of PPI claims. In the last year, the FOS received a staggering 379,000 complaints about PPI. To date, UK banks have required to set aside more than £12bn (and counting) relating to PPI claims that now exceed 700,000 complaints. To put the AVA figure in context, taking into account multiple and joint current accounts in the UK, the total number of current accounts is about 60m. Of these, somewhere around 17 per cent are AVA’s.

In calculating how much these accounts are worth to the banks, the figures do start to get interesting. Research from the consultants Defaqto shows that since 2008, the average monthly fee for an AVA has shot up to £15.11 from £12 four years ago. With 10.2m packaged accounts costing an average of £181 a year to run, this product is worth around £1.85bn to the banks in fees. These are fees that UK banks can scarcely afford to put at risk by another bout of mis-selling They would surely not be so daft as to put this revenue stream at risk Or so one would hope.

Since November 2009 there have been more packaged accounts available than standard, free in-credit current accounts. By April this year, there was 68 different AVA’s on offer on the UK market compared to 63 free-if-in-credit current accounts. But in the past few months, a number of UK banks have been keen to distance themselves from AVA’s. The new kid on the UK banking block, Metro Bank, ditched its £12.50 per month packaged account offering called Metro Bank Plus last December.

Meantime, market leader Lloyds Banking Group – it has a market share of around 1 in 3 AVA’s - pulled its AVA accounts from sale in its branches and over the phone from the start of the year. At the time, Lloyds said that sales suspension would be for what it called a "short period". Almost six months later, to the glee of the more excitable tabloid press (in particular the Mail), sales of the product remains suspended in-branch.

One might reasonably ask: how long does the bank require to re-train its branch staff not to run the risk of mis-selling a packaged account? Elsewhere, Santander launched what comes as close you will get to a genuinely innovative new bank product, the Santander 123 current account. It charges customers £3 per month to run and offers a bundle of benefits, such as cash-back on certain purchases.

Do not however dare to suggest to Santander that the 123 account is an AVA. The party line from Santander is that it does not now offer packaged accounts. The FOS has certainly stirred things up suggesting that some bank staff have switched current account customers to AVA’s without their knowledge, with many only becoming aware of the switch when they check their current account statement. It is also claimed that AVA’s have been sold to customers for whom such a product is not appropriate.

A number of banks have also been running scared when asked to discuss their strategy towards selling packaged accounts: Barclays being a notable exception.

In summary, it is far too early to be rushing out headlines suggesting that AVA’s are the next major banking scandal. The regulator, the Financial Conduct Authority, is already on the case and now requires banks to send AVA customers a yearly statement so that folks can see if they are benefitting from such accounts. If any banks are dumb enough to dare to mis-sell AVA’s in the future, they will be hung out to dry – and will have nobody but themselves to blame.

Meantime, just in case you are tempted to ‘upgrade’ your ‘free’ current account to any product containing any word such as Gold, Platinum, Select, Privilege, Ultimate etc: do your sums carefully before you sign up. And read the small print - just in case it is not for you.

 

Photograph: Getty Images

Douglas Blakey is the editor of Retail Banker International

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Metro mayors can help Labour return to government

Labour champions in the new city regions can help their party at the national level too.

2017 will mark the inaugural elections of directly-elected metro mayors across England. In all cases, these mayor and cabinet combined authorities are situated in Labour heartlands, and as such Labour should look confidently at winning the whole slate.

Beyond the good press winning again will generate, these offices provide an avenue for Labour to showcase good governance, and imperatively, provide vocal opposition to the constraints of local government by Tory cuts.

The introduction of the Mayor of London in 2000 has provided a blueprint for how the media can provide a platform for media-friendly leadership. It has also demonstrated the ease that the office allows for attribution of successes to that individual and party – or misappropriated in context of Boris Bikes and to a lesser extent the London Olympics.

While without the same extent of the powers of the sui generis mayor of the capital, the prospect of additional metro-mayors provide an opportunity for replicating these successes while providing experience for Labour big-hitters to develop themselves in government. This opportunity hasn’t gone unnoticed, and after Sadiq Khan’s victory in London has shown that the role can grow beyond the limitations – perceived or otherwise - of the Corbyn shadow cabinet while strengthening team Labour’s credibility by actually being in power.

Shadow Health Secretary and former leadership candidate Andy Burnham’s announcement last week for Greater Manchester was the first big hitter to make his intention known. The rising star of Luciana Berger, another member of Labour’s health team, is known to be considering a run in the Liverpool City Region. Could we also see them joined by the juggernaut of Liam Byrne in the West Midlands, or next-generation Catherine McKinnell in the North East?

If we can get a pantheon of champions elected across these city regions, to what extent can this have an influence on national elections? These new metro areas represent around 11.5 million people, rising to over 20 million if you include Sadiq’s Greater London. While no doubt that is an impressive audience that our Labour pantheon are able to demonstrate leadership to, there are limitations. 80 of the 94 existing Westminster seats who are covered under the jurisdiction of the new metro-mayors are already Labour seats. While imperative to solidify our current base for any potential further electoral decline, in order to maximise the impact that this team can have on Labour’s resurgence there needs to be visibility beyond residents.

The impact of business is one example where such influence can be extended. Andy Burnham for example has outlined his case to make Greater Manchester the creative capital of the UK. According to the ONS about 150,000 people commute into Greater Manchester, which is two constituency’s worth of people that can be directly influenced by the Mayor of Greater Manchester.

Despite these calculations and similar ones that can be made in other city-regions, the real opportunity with selecting the right Labour candidates is the media impact these champion mayors can make on the national debate. This projects the influence from the relatively-safe Labour regions across the country. This is particularly important to press the blame of any tightening of belts in local fiscal policy on the national Tory government’s cuts. We need individuals who have characteristics of cabinet-level experience, inspiring leadership, high profile campaigning experience and tough talking opposition credentials to support the national party leadership put the Tory’s on the narrative back foot.

That is not to say there are not fine local council leaders and technocrats who’s experience and governance experience at vital to Labour producing local successes. But the media don’t really care who number two is, and these individuals are best serving the national agenda for the party if they support A-listers who can shine a bright spotlight on our successes and Tory mismanagement.

If Jeremy Corbyn and the party are able to topple the Conservatives come next election, then all the better that we have a diverse team playing their part both on the front bench and in the pantheon of metro-mayors. If despite our best efforts Jeremy’s leadership falls short, then we will have experienced leaders in waiting who have been able to afford some distance from the front-bench, untainted and able to take the party’s plan B forward.