C&G borrowers in line for compensation

Hundreds of borrowers could be in line for compensation payments after Cheltenham & Gloucester today announced that it did not plan to challenge an ombudsman's ruling over its dual mortgage rate.

Last week the Financial Ombudsman Service ordered the former building society to reimburse a customer the amount of money they would have saved if they had been allowed to switch to the lower of the group's two standard variable rates.

C&G said today that it had decided not to appeal against the judgement, and would be writing to the hundreds of customers who could now qualify for similar payments within the next two weeks. However, the group declined to reveal exactly how many people were affected or what the total payments would be.

The ruling relates to the C&G variable rate which was introduced on April 30 last year to reward existing borrowers by offering them a rate that was lower than the C&G standard variable rate. The group began writing to customers of theirs who were not locked into a mortgage deal (such as a fixed or capped rate mortgage) offering them the new rate. However, C&G withdrew the rate on September 10 following an ombudsman's decision that dual mortgage pricing policy operated by rivals Halifax was confusing.

The latest ombudsman case involved a C&G borrower who applied for the new rate while it was still available but was turned down as being ineligible. C&G has been ordered to pay the amount the borrower would have saved in interest if the borrower had been allowed to change to the lower rate, plus a small sum for inconvenience caused.

The group said it would also settle with any borrower whose circumstances were the same as those of the test case, and who complained while the new rate was still on offer.

The ombudsman is currently hearing a second case against the group involving an application for the lower rate once it was withdrawn. C&G said it believed it would win this case, and urged other customers to wait for the outcome of this case before they considered
any action.

C&G managing director Roger Burden said: "We are disappointed with the ombudsman's ruling. We feel that the adjudications against all lenders have resulted in the withdrawal of initiatives that were designed to benefit borrowers, not disadvantage them.

"It should also be remembered that the Financial Ombudsman Service is there to determine individual complaints in individual cases, not lenders' strategies or pricing. Consumers benefit from strong competition between lenders, and there is a danger that this could be substantially diminished if we all fear that new lending initiatives might render us liable to retrospective financial penalties."

In February, Nationwide announced it was giving 400,000 borrowers refunds totalling ?90m after charging them a higher mortgage rate than other customers. The move came after the ombudsman ruled that the mutual had acted unfairly in keeping a borrower on a mortgage rate linked to its higher standard variable rate, instead of transferring them to its new lower base mortgage rate.

Britain's biggest mortgage lender, the Halifax, also withdrew its new standard variable rate after the ombudsman ruled its practice of having two standard variable rates was confusing for customers.