Could you make an ombudsman claim against your bank for shocking cash ISA rates?
We all know that cash ISA rates have been, at best rubbish, for years. Low interest rates have hit savers hard, with an estimated £12bn languishing in cash ISAs paying a maximum of half of one percent. However, if you discover that your bank has sneakily cut your ISA rate, you may be able to claim compensation by making a complaint to the Financial Ombudsman Service- even if ‘official’ regulations state that the bank was under no obligation to personally tell the customer about the rate cut.
By law, banks must inform customers if a rate change is "material", but what counts as a material reduction in rates, is determined by the voluntary "Banking Code”. Currently, banks can lower interest rates on individual accounts by up to 0.25% at a time, or 0.5% over the year, without explicitly informing customers. If a customer saves less than £500, the bank needn't notify them at all.
But what this means is that, in theory, a bank must warn a saver of a rate cut which will cause them to lose £1.30 in interest, but someone who would lose £125 a year did not have to be informed. This is because a bank must tell a customer with £500 in their account if their rate is about to change by 0.26% (leading to a £1.30 loss), but not when a customer, found by the Telegraph, with £50,000 in an account had her rate cut by 0.25%. The customer in question complained to the Financial Ombusdman, and her case was upheld.
So what do you need to do if you think you have a case? If you consider you lost money by being put on a poor rate, and were not properly informed about it, you can complain to the Ombudsman, free of charge, and unlike the banks, the Financial Ombudsman looks at the overall situation rather than sticking to the arbitrary "0.25%" from the banking code.
The amount of money in the account, the length of time a customer is given to consider the rate fall and any loss from a rate change are among the factors that the ombudsman considers. And unlike the banking code, the ombudsman thinks that "deciding what is considered material [in respect of a rate change] is very much down to the individual case in point, and the individual circumstances."
But some people think that banks might, shock horror, be doing this deliberately. James Daley, a consumer campaigner from Fairer Finance said: "As the Ombudsman complaints show, some banks are still interpreting 'material' in a way that is not very fair for the customer…Banks deliberately misinterpret the rules in pursuit of greater profits.”
Others think the banks are simply hiding behind out-dated rules. "The rules haven't kept up with the way the savings market has changed," said Anna Bowes, of rate-monitoring service Savings Champion. "Now, 0.25% is a very substantial reduction in interest, as savings rates as a whole have fallen."
Either way, if you have suddenly found your ISA shrinking without due notification, or an introductory rate is sneakily withdrawn early, you could claim recompense for the interest you were expecting. Although given maximum rates, that’s probably not a fat lot either…