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ombudsman news

issue 109

April/May 2013

individual savings accounts (ISAs)

Although we receive complaints about ISAs throughout the year, we tend to see more just after the start of a new financial year and into the summer. Many of the problems we see are caused by the rush at the end of the financial year - when businesses are promoting their ISAs and many consumers are in a hurry to make the most of their yearly tax-free allowance. The volume and pace of these transactions can sometimes lead to misunderstandings - and to businesses making administrative mistakes too.

As well as continuing to see complaints about administrative issues, we have started seeing more complaints about introductory offers on ISAs. These often involve ISAs where the interest rate is fixed for a certain period, and then changes to a lower rate. In many of these cases, the consumer says they hadn't realised that the interest rate would change - and that they had only become aware of it once the interest rate had fallen.

We are also seeing complaints about fixed-rate cash-ISAs where the provider has withdrawn the product from the market. This means the ISA is effectively closed to more money being paid in. If the consumer had not funded the ISA up to its limit by the time the product was withdrawn, they were not then able to make any more tax-free savings in that year - because the ISA rules allow consumers to open just one cash-ISA account during a tax year.

The case studies that follow include examples of:

  • a consumer who complained that her ISA provider hadn't told her that the interest rate on her cash-ISA could vary;
  • a consumer who complained that he missed out on his tax-free savings allowance for the year - because his bank wouldn't accept his signature; and
  • a consumer who complained that her bank had withdrawn an ISA from the market - and hadn't let her know when it was going to happen.

issue 109 index of case studies

  • 109/7 - consumer complains that building society changed terms and conditions of her fixed-rate cash-ISA
  • 109/8 - consumer complains that he missed out on his tax-free savings allowance because his bank wouldn't accept his signature
  • 109/9 - consumer complains that bank did not let him know the interest rate on his fixed-rate ISA was changing - and that it delayed transferring his money to a different bank
  • 109/10 - consumer complains that bank transferred money from his ISA to someone else's account without his permission
  • 109/11 - consumer complains that her bank didn't let her know that her limited issue ISA was about to be withdrawn
  • 109/12 - consumer complains that ISA provider did not let her know that interest rate on her ISA could vary

109/7
consumer complains that building society changed terms and conditions of her fixed-rate cash-ISA

Mrs W opened a fixed-rate cash-ISA. The terms and conditions said that when the ISA matured four years later, the funds would be placed into an instant-access cash ISA.

A few months later, the building society wrote to Mrs W to tell her that the terms and conditions had changed. Mrs W would now have to tell the building society what she wanted them to do with the money when the ISA matured. If she didn't, the money would automatically be put into another fixed-rate cash-ISA - similar to Mrs W's existing one.

Mrs W complained to the building society. She said she wasn't happy that the terms and conditions had been changed. And she was concerned about giving the building society instructions about what to do with her money at the right time.

The building society turned down Mrs W's complaint. It said that it would write to her 35 days before the ISA was due to mature - and that she would also have a 14-day "cooling-off period" after the money had been placed in a new fixed-rate ISA. It also said that it would take a customer's individual circumstances into account if there was a genuine reason for them missing these deadlines.
Mrs W was still concerned, and she decided to ask us to investigate.

complaint resolved
We asked the building society for background information about the terms and conditions in relation to this case.

The building society told us it had decided to change the terms and conditions because many of its customers had said they would lose money if there wasn't an automatic "rollover" into another fixed-rate cash-ISA.

We also noted that the building society had written to Mrs W explaining very clearly what was going to happen at the end of the term. From our conversations with Mrs W, we established that having received the letter from the building society, she had already planned where she would move the money when the time came.

So Mrs W would not actually have lost out financially because of the change to the terms and conditions. It was more that she felt it was an important point of principle that the building society shouldn't have been allowed to change the terms and conditions of her ISA.

But when we explained what had happened - and why the building society had made the change - Mrs W recognised that it would actually be helpful to other people, and she decided not to take her complaint any further.

109/8
consumer complains that he missed out on his tax-free savings allowance because his bank wouldn't accept his signature

Just after Christmas, Mr V opened a fixed-rate cash-ISA with his bank. In early March he decided to transfer some money from his savings account into his new ISA - to make the most of his tax-free savings allowance for the year. He went into the local branch of his bank and filled in a form to instruct his bank to transfer the money. He gave the form to a customer services adviser and was told that the transfer would go ahead over the next few days.

A week later Mr V's bank wrote to him to say they couldn't accept his instructions. They explained that the signature he had given on the transfer form didn't match the one they had on record for him - which he had given them when he had first opened his bank account several years earlier. The bank told Mr V that they would be in touch to organise another way for him to pay the money into his ISA.

A few days later the bank wrote to him again and explained that they would need to see some more identification before they could transfer the money. So Mr V went back into town to the branch. He took his photo driving licence with him, and filled in another form to instruct the bank to transfer money from his savings account.

But once again, the bank said they couldn't transfer the money because Mr V's signatures didn't match. By this point Mr V was really frustrated - and he decided to complain. He wrote to the bank, pointing out that he had been banking with them for several years - and that he was surprised they were being so unhelpful.

But the bank said they hadn't done anything wrong - and that they couldn't go ahead with the transfer without a signature that matched the one they had on record. By the time the bank had responded to Mr V's complaint, the financial year had ended - and he had missed out on his tax-free savings allowance for the year.

Mr V was unhappy with the situation - and he decided to bring the matter to us.

complaint upheld
We listened to both sides of the story, and we looked at the paperwork Mr V had been sent.
We could understand why the bank had concerns about Mr V's signature not matching the one it had on record for him. After all, they needed to be sure that the instructions really were his.

But we concluded that the bank hadn't done enough to explain to Mr V what he needed to do to update the signature they had on their records. We also thought that some of the information that the bank had sent Mr V had been confusing - and had caused unnecessary delays.

Because Mr V had missed out on some of his tax-free savings allowance for the year, we told the bank to put things right in line with our usual approach to these cases - which we publish on our website.

109/9
consumer complains that bank did not let him know the interest rate on his fixed-rate ISA was changing - and that it delayed transferring his money to a different bank

Mr K had an ISA with a fixed-term interest rate. At the end of the fixed term, the interest rate reduced to 0.5%. Mr K decided to open an ISA with a different bank - and he asked his original bank to transfer his savings to his new ISA.

Mr K's bank told him that the transfer should happen within 15 days - but it took over a month for the money to be transferred to his new ISA.

Mr K was unhappy with the service he had received, and he complained to the bank. He said he ought to have been told sooner about the change to his interest rate, and he asked for compensation for the delay in transferring his money to his new ISA.

The bank didn't agree it should have given Mr K more notice about the change to his interest rate. And it said the delay in transferring the money had been caused by his new bank.

Mr K was unhappy with the situation, and he asked us to look into it.

complaint not upheld
The rules governing ISAs changed in November 2009. Under these rules a bank is required to tell a customer when a fixed or promotional interest rate is about to come to an end. Mr K said the bank didn't tell him about the change at all.

However, when we looked at the evidence we noted that the bank had sent Mr K a letter as part of a "maturity pack" telling him about the change a month before it was due to happen. So we were satisfied that the bank had given Mr K enough notice about the change to the interest rate on his ISA - and that it had acted in line with the rules.

When we looked into why there had been a delay in transferring Mr K's money to his new account, we established that the delay had been caused by his new bank. The relevant guidelines said that the new bank should pay interest on the money from the sixteenth day after the transfer process had started.

We told Mr K that we could not, in fairness, make his old bank compensate him for delays caused by his new bank. But we explained that he was free to take the matter up with his new bank.

In these circumstances, we did not uphold the complaint.

109/10
consumer complains that bank transferred money from his ISA to someone else's account without his permission

Mr R received his annual statement for his cash-ISA. When he looked at the statement he realised that three payments of £300 had been paid from his ISA into an account he had never heard of.

Mr R complained to his bank. He said that he had never given his permission for the money to be transferred, and he asked the bank to refund his money so that he could reinvest it in his ISA.

But the bank said that a standing order had been set up to transfer money from Mr R's ISA. And it said it wasn't prepared to refund the money.

Mr R didn't think this was fair. He was sure he hadn't asked for a standing order to be set up. He decided to do some web research to find out whether anything similar had happened to anyone else. When he looked into ISAs in more detail, he realised that he wouldn't be able to reinvest the money in his ISA anyway - because it would count as an additional deposit, and would take him over his annual ISA limit.

He wasn't sure what to next, so he brought his complaint to us.

complaint upheld
When we looked at the bank records for Mr R, it was clear that the problem had been caused by the standing order.

Mr R told us he hadn't set up the standing order - and the bank couldn't offer any evidence to show that he had done so. So we concluded it was likely that the bank had set up the standing order by mistake.

We noted that Mr R wouldn't be able to simply replace the money in his ISA - because it would have taken him over his annual limit. So we told the bank to put things right in line with our usual approach - which we publish on our website.

109/11
consumer complains that her bank didn't let her know that her limited issue ISA was about to be withdrawn

Miss C had recently been promoted, and she was finding that she had some money left over at the end of the month. She decided to open a cash-ISA to build up some savings - and went online to research the various products on offer. She took out a "limited issue" fixed-rate ISA with her bank in early April - and arranged to pay £200 a month into her account. In May, she phoned the bank to ask them to increase her monthly payments to £300.

In July, Miss C's usual ISA payment bounced back. She wasn't sure what had happened - so she phoned her bank to see what was wrong. They told her that her ISA had been "withdrawn from the market" at the end of May - and that it was now closed to any more money being paid in. The bank also explained that there had been a 30-day period after 31 May when customers could make final payments into their account - and that was why her payment in June had gone through.

Miss C knew that the ISA could be withdrawn at any time. But she didn't think the bank had treated her fairly, and she decided to complain. She pointed out that her bank should have warned her that the ISA was about to be withdrawn. She also said that she had missed out on the opportunity to make a payment into her account during the 30-day extension - and that she couldn't make any more tax-free savings that year.

When the bank rejected her complaint, Miss C asked us to look into it.

complaint resolved
When we spoke to the bank, they told us that the precise date on which they had intended to withdraw this ISA from the market had been commercially sensitive information - and that they hadn't released that information publicly. They also pointed out that the ISA's terms and conditions said clearly that the bank could withdraw the product at any time - and without notice. The bank told us that in these circumstances, it didn't believe it had done anything wrong.

We also spoke to Miss C about her understanding of the terms and conditions of her ISA. She confirmed that she had known that the bank could withdraw it without giving her notice. But she still felt that because she hadn't known the exact date on which they would do this, she had missed out on the opportunity to make a final payment into her ISA.

We explained Miss C's point of view to the bank. Following this conversation, the bank decided that because Miss C had spoken to them just a few days before the product was going to be withdrawn, they would pay the interest that she would have received if that money had paid into her ISA. The bank also paid Miss C £100 compensation for the inconvenience it had caused her.

109/12
consumer complains that ISA provider did not let her know that interest rate on her ISA could vary

Miss Y opened a postal ISA account in 2007. Over the years the interest rate varied and the provider sent Miss Y annual statements to show how much interest she had earned each year. Between March 2010 and March 2012 the provider reduced the interest rate from 3.25% to 0.25% through a series of reductions of around 0.25%. In March 2012 it reduced it again to 0.1%.

In April 2012 Miss Y got in touch with her provider because she wanted to withdraw some money from her ISA. She was surprised to find out that the interest rate had dropped - because she had thought she had a fixed-rate cash-ISA.

Miss Y complained to her ISA provider. She said it ought to pay her the interest she would have received if the rate had stayed the same as it had been when she opened the account. But the provider told Miss Y that they hadn't done anything wrong. They explained that the interest rate on her ISA was variable - and that they didn't have to tell her when it changed.

Unhappy with their reply, Miss Y asked us to investigate.

complaint upheld
Miss Y told us that she hadn't ever received the terms and conditions for her ISA - and so she hadn't known that the interest rate was variable.

We couldn't be sure whether Miss Y had ever received the terms and conditions. But we could see from the ISA provider's records that she had been sent statements each year. The statements clearly showed that the interest rate had varied each year - and Miss Y hadn't queried the interest rate with the ISA provider until she had tried to withdraw some money in April 2012. So we concluded that it was reasonable to have expected Miss Y to have known that the interest rate wasn't fixed.

We also took the view that the ISA provider had been entitled to vary the interest rate on this particular kind of ISA. But we needed to decide whether they should have told Miss Y personally every time the interest rate changed.

We took into account the relevant rules about interest rate variation that had been in force during the life of Miss Y's ISA. Before November 2009, a bank was required to tell a consumer personally about any significant change to their interest rate. That usually meant a change of 0.25% or more in one go, or a change of 0.50% or more over a rolling 12-month period compared with the Bank of England base rate.

When we looked at the changes to the interest rate on Miss Y's ISA we noted that this hadn't happened. The interest rate had fallen between 2007 and 2009, but only in line with the base rate. So we concluded that the ISA provider hadn't been obliged to send Miss Y personal notification about those interest rate changes before November 2009. And we were satisfied that the provider had provided general notification of the changes to the interest rate on her ISA - in this case, on its website.

On 1 November 2009, however, new rules came into force. Under the new rules, ISA providers are required to give personal notification to a consumer when there is a "material" change to their interest rate. To decide whether a change is material we take into account the amount of money the consumer has in their ISA and the size of the change in the interest rate.

At that time, Miss Y had more than £9,000 in her ISA. So we decided that the reductions in the interest rate from November 2009 had been material and that the bank should have given Miss Y personal notification of them - for example, by letter or by email.

So we told the bank to pay Miss Y the difference between the interest she had actually received on her ISA, and the interest she could have earned on her money if she had transferred it to the ISA with the best interest rate available in March 2010 - the date of the first "material" change.

image: ombudsman news issue 109

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.