New accounts may be being mis-sold the FSA warns
Bank accounts which charge fees for extra benefits such as insurance may be being mis-sold, the Financial Services Authority (FSA) has warned.
It says the danger lies in people buying packaged accounts with insurance that is too expensive or inadequate.
The FSA says about 15% of the adult population already have these accounts, so large numbers of people might be disadvantaged by them.
The warning comes in the FSA's Financial Risk Outlook for 2010.
"Packaged accounts may offer value for money for some consumers, but they may not benefit all," the FSA said.
"Consumers could be better off purchasing products individually or not at all.
"And some may find that where the add-ons are insurance products, they do not provide the expected level of cover," it added.
The central point of the Financial Risk Outlook is that the financial system, and the firms that operate in it, are going to be under considerable pressure in the coming years because of the lingering effects of the credit crunch and the recession.
This may lead some firms, such as banks, to try to restore their profits by selling inappropriate policies and products to their customers.
For instance, the regulator says that offering loans only to people who open a bank account, in order to attract those savers' money, may not be in the customers' best interests.
"These products could offer good value for some consumers as they are not necessarily higher risk," the FSA said.
"However, there is a possibility that some consumers may not fully understand the terms and conditions of these products."
The FSA also warns that pressure on the profitability of insurance firms means that some cut-price general insurance polices may not offer the level of cover the customers are expecting.
Although the regulator has been taking action against the widespread mis-selling of payment protection insurance (PPI), it said: "New products are emerging which have similar characteristics to PPI."
"These products could be sold in ways which lead to similar consumer detriment to that experienced with PPI."
The FSA issues a general warning that financial services firms "must not increase margins in ways that result in unfair treatment of consumers."
Overall, the Financial Risk Outlook argues that the financial crisis is past its worst, and that most economies are now out of recession.
But the huge injection of public money into the banking system to stop it from collapse in the past two years has yet to be paid back.
About £300bn needs to be repaid to the Treasury or the Bank of England by end of 2012.
One one way of partially plugging that gap will be for financial institutions to attract more money from savers.
The FSA warns that this will not succeed on its own and banks will have to come up with other ideas.
But intensified competition for depositors' money will put even more pressure on the UK's building societies.
Many are currently "hibernating", the FSA said, finding it hard to make any profit with savers rates at very low levels, with many societies locked into mortgage deals they agreed on terms which have turned out to be uneconomic.
"The challenge of the very low interest rate environment has been compounded for those building societies that have a significant proportion of their mortgages priced as base rate trackers with low or no floors," the FSA said.
"They will continue to suffer very low margins unless or until the mortgages revert to standard variable rates (SVR) or another higher margin rate.
A number of societies also have capped their SVRs at a narrow spread over Bank Rate, with little or no contractual ability to reset them; if base rates remain low, these societies will continue to experience margin pressure even after fixed or tracker rates revert to SVR," the FSA added.