Now C&G pays up over dual rates

An ombudsman ruling this week paves the way for compensation payouts to thousands of Cheltenham & Gloucester home loan customers as the controversy over so-called dual mortgage rates flared up once again.

C&G is the latest big-name lender to be lambasted after leaving some of its mortgage-holders stuck on its higher standard variable mortgage rate when it introduced a headline-grabbing new lower rate last year.

The ruling is likely to trigger a flood of compensation claims from other borrowers who were left out-of-pocket. It also puts the spotlight once again on the Halifax, which has come under fire for refusing to compensate large numbers of those affected by its own dual rates debacle (see right).

In all, up to half a million C&G borrowers could be affected by this latest ruling - that's the total number of people on mortgage deals linked to its standard variable rate. However, it seems likely that C&G will attempt to restrict payouts to a smaller number than this, though how much smaller is not clear. It indicated that, based on its understanding of what the ombudsman is saying, it is unlikely that large numbers of the 500,000 will qualify for a refund.

The high street giant, fearful of being swamped with letters and phone calls from concerned mortgage-holders, is urging borrowers to hold fire on taking any action until it announces how it will be responding to the ruling. This announcement could come as early as Monday.

At issue is the decision by C&G, Halifax, Nationwide and other lenders to bring in lower variable mortgage rates, but to prevent some existing customers from taking advantage of these, insisting they were tied to the "old" standard rate.

These people typically held discounted rate or capped rate mortgages. Angry borrowers claimed the lenders had effectively created two standard variable rates and left them stranded on the higher one.

C&G brought in its lower "C&G Variable Rate" on April 30 last year. It was up to 0.9% lower than the standard variable rate and was only available to existing customers not on special deals, effectively adding £36.50 month to a £50,000 interest only mortgage.

The unnamed C&G borrower was locked into the higher rate and complained to the ombudsman after their request to go on to the lower rate was refused.

C&G abandoned its dual mortgage rate policy on September 10, just days after the first ombudsman criticism of the Halifax's actions was made public.

This latest ruling is understood to involve C&G having to refund the money the test case mortgage-holder who was overcharged - estimated at around £100 - plus around £150 for the inconvenience they suffered.

So what happens now, and what should other C&G borrowers do? It depends on what action C&G decides on. It could: appeal against the ruling or accept the ruling and automatically compensate all those borrowers affected, as the Nationwide did, which would benefit up to 500,000 borrowers or opt to only make payouts to those borrowers whose circumstances are similar to the test case person and who have complained, as the Halifax did. If C&G appeals against the ruling you should probably get your complaint in now, because the row could take months to resolve.

C&G's chances of overturning the ruling are slim - every lender that has appealed over dual mortgage rates has lost.

Once you have taken your complaint as far as you can, ask for a 'deadlock letter' from C&G so you can take your case to the ombudsman (www.financial-ombudsman.org.uk tel 0845 080 1800).

If C&G accepts the ruling and automatically compensates everyone affected, that would obviously be great news. Earlier this year, Nationwide decided to automatically compensate 400,000 borrowers. They are receiving a reimbursement of their overpayments and have been transferred to a lower mortgage rate. However, the chances of C&G doing the same, at a cost of tens of millions of pounds, look slim.

If C&G follows the Halifax, and attempts to limit compensation to those whose situations are similar to the test case person and who have complained, you may have to prepare for a long drawn-out battle. If you are one of those excluded from such a deal, first complain to C&G.

They may roll over and cough up. If they don't, go to the ombudsman. People shouldn't expect big money payouts - it appears the maximum anyone could get is a refund of four months overpayments plus a possible £150.

At least the lender is not insisting the ruling only applies to the test case individual.

It says that because this was a lead test case, anyone with similar circumstances would have to be treated in the same way. However, it will be interesting to see how they define "similar circumstances".

Meanwhile, Abbey National is awaiting its own dual mortgage rates ombudsman decision. It appealed after losing the first round, involving a cashback mortgage-holder.