Do bundles cross the line?

Nicole Blackmore assesses the problems that could face providers and advisers after an European Commission probe claimed that some bundled products are unfair to consumers

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UK banks and clients are on the alert after a report from the European Commission found some bundled products cause consumer detriment.

Last week, Money Marketing revealed that bundled prod- ucts could be banned after the European Commission bran- ded them “anti-competitive” and “unfair”.

The commission investigated cross-selling across EU member states, including the UK.

It found some cross-selling practices, such as packaging two or more products together, are unfair because they impede consumers being able to switch between products or make accurate price comparisons.

“Tying” is defined as two or more products packaged together where at least one of the products is not sold separately while “mixed bundling” occurs when products are packaged but are also available separately.

It says potentially harmful bundles include mortgages cross-sold with life insurance and current accounts, as well as current accounts sold with investment services, loans, credit or debit cards and life insurance.

The paper suggests that 572 million contracts across the EU could be switched if cross-selling and conditional practices were not applied by financial service providers.

The commission says: “The results of the test suggest cases of tying practices that are anti-competitive as well as harmful to consumers and small and medium enterprises as they reduce customer mobility, price transparency and the comparability of providers on the market, increase switching costs and negatively affect consumer confidence.”

Association of Mortgage Intermediaries director Robert Sinclair says the EC is trying to ensure consumers have transparency over the true cost of both the sub-components and the overall cost of a package.

But he adds that joining mortgages with current accounts could have some advantages, such as allowing banks to properly assess affordability.
He says: “In the UK, we spent time moving away from tying but, in recent years, given the changing dynamics in the marketplace, we have seen a return to this approach.

“Joining current accounts with mortgages might have benefits such as allowing lenders to assess affordability more easily but where it adds cost it cannot be in the best interest of consumers. On the other hand, some banks offer better rates on mortgages when they have a deeper and wider relationship with the consumer.

The key issue is that institutions look at the EU’s findings and think about acting in the spirit of what has been suggested so that consumers have transparent access to pricing and benefits and do not get into a position where they have to unwind a lot of accounts that have only recently been put in place.”

Moneysupermarket head of banking and credit cards Kevin Mountford says that more bundled propositions have come into play as banks look to increase their product holding per customer and improve retention rates.

He says: “Often, one of the products offered uses a strong headline rate to attract customers but the concern is that this can then mask the fact that the linked product is not that competitive.

“This is now on the regu- latory radar but it is unlikely that any immediate changes will be enforced, so it is imperative that consumers look beyond the headline offer and ensure that the bundled offer is appropriate to their needs.”

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