Banks should allow consumers to select the benefits they want with their packaged accounts to help combat mis-selling of the products, Defaqto has said.
In October 2011, the Financial Services Authority (FSA) proposed a new set of rules for bank advisers to follow when recommending packaged accounts to customers following an investigation.
The FSA found that millions of consumers had been mis-sold packaged accounts, some costing £300 per year. In many cases the consumers were not even eligible for the benefits attached to the accounts.
In a white paper published today, Defaqto said banks could better comply with the FSA's proposed rules on sales of the products by creating menu-style accounts where consumers select the benefits they want.
The FSA has proposed that bank advisers check a consumer is eligible for any insurance policies attached to the account, regularly update the consumer on their eligibility, and alert them if they become ineligible.
Defaqto said by creating menu-style products, providers could better comply with these requirements, and actually increase their product ranges and tailor packaged products for specific consumer groups.
However, it said the banks would have to face the effects of creating such products.
Defaqto said with an increase in choice, consumers would become more likely to start switching current accounts, creating complications for banks.
Menu-style accounts would also increase the risk banks hold through the insurances sold via packaged accounts, Defaqto said.
"If people are able to positively select the insurances they want the insurer is less likely to get the rounded book of risk that it currently enjoys; it would become much more skewed towards eligibility and usage and this would increase the risk to the insurer," the report said.
"Using an extreme example it could see the insurer getting a multitude of high risk elderly account holders signing up for travel insurance.
"This would inevitably push up the amount charged by the insurer and could also result in providers increasing the actual monthly fee charged for the packaged current account."
The FSA's packaged account consultation closed on 27 January. It expects to publish final rules on packaged account sales in July 2012.
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