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A consumer&#39s view

The repercussions of the ombudsman&#39s decisions on dual pricing of mortgages rumble on. There is concern that his decisions on individual complaints are having far-reaching effects that are not necessarily in consumers&#39 long-term best interests. The upshot could be less choice for homebuyers.

The complaints about dual pricing against Halifax, Nationwide and Abbey National were all different. But the upshot is that lenders are likely to come to the conclusion that they cannot price some products against bank base rate while using the managed standard variable rate as the benchmark for others. This is definitely a retrograde step and reduces homebuyers&#39 choice.

Halifax&#39s mistake was, of course, to put the word “variable” in the description of HVR2. Had it simply used “new borrower rate” the problem would have been avoided.

Halifax intends to relaunch a lower rate by calling it a tracker but it is only a matter of time before some disgruntled homebuyer claims that it is a standard variable rate in all but name.

If the ombudsman can find against Norwich & Peterborough Building Society for not suggesting that investors in Tessas, which became obsolete when they were discontinued by the new Labour Government, could switch into a cash Isa, then it is clear he is prepared to “look through” all kinds of arrangements that the savings and loan institutions devise.

Norwich & Peterborough is quite right to challenge his judgement with a judicial review to be heard later this year. A Tessa is substantially different from a mini cash Isa. The ombudsman ignored the fact that you cannot withdraw capital from a Tessa before maturity without losing the tax advantages while money can be withdrawn from a mini cash Isa at any time without penalty.

In addition, the maximum investment in a mini cash Isa is only £3,000 so it would be impossible to transfer the full £9,000 maximum investment in a Tessa to the Isa.

But if we look ahead, the natural extension of these judgements could have devastating effects on financial institutions. An increasing number of complaints which find their way to the Financial Ombudsman Service concern unfair terms in consumer contracts legislation, which was introduced in July 1995.

One of the most blatant examples of an “unfair” contract are savings and pension policies. Charges to be levied on the contract have to be sta-ted but a large proportion of them contain a clause which says, in effect, “these are our charges now, but we reserve the right to change them at any time.” For change, read increase.

Clearly the investor is being asked to sign something where the charges are ultimately unknown and can be increased at any time. Moreover, the consumer has no bargaining power and cannot negotiate a change in the standard terms of the policy.

It is arguable that contracts which limit any increase in charges to an expressed formula, such as “increases will be limited to a maximum of any rise in the retail prices index” or something similar, might escape the charge of being unfair.

But imagine the compensation bill the life and pensions industry could face. Many individuals with high-charging personal pensions have a legitimate complaint that they have an “unfair” contract and could demand a switch to a stakeholder with its maximum charge of 1 per cent a year, and a rebate of all charges above that on the personal pension.

Don&#39t think it couldn&#39t happen. If the ombudsman is minded to find in favour of Halifax&#39s complainant, Mr Wright, who maintained that his capped mortgage ought to be linked to the lower 5 per cent HVR2 – even though this did not exist when he signed his contract – then it is clear that the ombudsman is quite prepared to make a liberal interpretation of contract terms with far-reaching consequences.

We have already seen the widespread effect that a single judgement can make in the case of Halifax and other lenders which have been forced to abandon dual pricing of mortgages. It would only require a couple of successful complaints about “unfair” pension contracts and charges for the entire industry to be faced with a compensation bill which could bankrupt many companies.


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