Increase in packaged bank account complaints

The financial watchdog has seen a "substantial" rise in the number of complaints about packaged bank accounts, making it the second biggest problem financial product behind payment protection insurance (PPI).

The Financial Ombudsman Service (FOS) said complaints about packaged bank accounts came in at around 1,000 a week in the six months to the end of June.

Around 25,500 people complained about the issue in the first half of this year - more than in the whole of 2014.

Packaged bank accounts offer extra benefits, such as insurance and cheaper overdrafts, but charge a fee in return.

The FOS added that complaints about financial products other than PPI jumped 45% to 79,550 in the period, as a result of an increase in complaints about packaged bank account complaints brought by claims management companies.

Chief ombudsman Caroline Wayman said: "Claims managers have also been largely responsible for the substantial increase in complaints about packaged bank accounts, which have driven up our banking workload over this period by two-thirds."

Packaged bank accounts, which on average charge £150 a year, have been criticised because the suite of services they offer such as car, mobile phone and holiday insurance can often be bought more cheaply elsewhere.

They are also often sold to elderly customers who then find age restrictions on the insurance cover when they attempt to claim.

Overall, the FOS said it handled a total of 173,994 new cases in the first half of 2015, up 8% on the same period a year ago.

PPI made up 55%, or 94,091 cases, of all complaints referred to the ombudsman in the first half of the year, a 10% fall compared with a year ago.

The FOS said across the range of complaints it worked on it found in favour of consumers in 57% of its cases.

But Ms Wayman said: "Complaints about PPI continue to make up over half of our workload.

"And though the number of new PPI cases has reduced in the first half of this year, the decline has not been as steady or as marked as generally expected.

"This is at least in part due to the continued high levels of activity by claims managers in this area."

The total cost of the PPI mis-selling affair racked up by the UK's five big banks is around £27 billion, according to Which? following more provisions put by in the recent round of interim bank results.

State-backed Lloyds Banking Group's bill for the payment protection insurance scandal has topped £13 billion after it took another £1.4 billion hit over the scandal as it revealed its half-year results last month.

Lloyds expects complaints to start to tail off but warned that if they did not it would have to add an extra £3 billion to the sum by the end of next year. It is the lender faced with the biggest bill from the PPI scandal.