C&G loses dual rates test case

Several hundred thousand Cheltenham & Gloucester mortgage customers could be in line for compensation after an ombudsman ruled against the company yesterday.

C&G, the mortgages arm of Lloyds TSB, is the latest lender judged to have acted unfairly by leaving a borrower stranded on its higher variable mortgage rate when it introduced a lower rate last year.

Details of the financial ombudsman service ruling have not been made public but it is understood to involve C&G having to refund the money the test case mortgage-holder was overcharged - estimated at about £100 - plus £150 for inconvenience suffered.

The ruling opens the way for compensation claims from other borrowers in a similar position. C&G said yesterday that it would announce its response within days.

It might decide to compensate all borrowers affected, which would benefit up to 500,000 people on mortgage deals linked to its standard variable rate, or it could opt to only make payouts to those whose circumstances are very similar and who make a complaint.

C&G, Halifax, Nationwide and others brought in lower variable mortgage rates but insisted that existing customers were tied to the "old" standard rate.

The C&G Variable Rate, introduced on April 30 last year, was up to 0.9 of a percentage point lower than the standard variable rate. The unnamed C&G borrower complained to the ombudsman after a request to go on to the lower rate was refused.

C&G abandoned its dual mortgage rate policy on September 10.