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

Photo: Getty Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.