The FSA has raised concerns that bundled products such as offset mortgages could lead to providers wielding market power over consumers at consumers’ expense.
The regulator published its discussion paper on product intervention today which called for more intrusive product intervention, including the possibility of banning of certain products from being sold to certain customer groups.
The FSA says: “How the product is sold can also hamper a consumer’s ability to recognise suitability.
“For instance, if it is sold as a secondary product or bundled with another product, for example, offset mortgages that bundle savings and mortgage products, this can lead to problems.
“Given consumer interests and behavioural traits, consumers may focus less on certain product features or add-on products and request less information about them than they would about standalone products. So, bundling or offering add-on products can give providers market power, which they may exercise at consumers’ expense.”
The regulator has highlighted bundled products targeting a limited market and where products are cross-subsidising each other as a cause of potential problems for consumers.
The FSA adds: “While cross-subsidy is an integral part of business strategies in most markets, the design of a financial product as part of a strategy of extracting as much profit as possible from a particular group of consumers is clearly a matter for regulatory concern.”