Egg in OFT probe

THE Office of Fair Trading is investigating egg, the new bank launched by the Prudential, to determine whether its new instant access savings accounts are in breach of rules designed to protect consumers.

The consumer watchdog is looking at a clause in the small print of the accounts which allows the bank to change the notice period for withdrawing money from instant access to 60 days - without telling customers beforehand.

The OFT is examining whether the offending clause, listed as 5.7 in the savings account literature, breaks the rules on Unfair Terms in Consumer Contracts, which guard against detriment to the consumer.

Egg was launched amid a fanfare of publicity two weeks ago as a new bank that offered better rates of interest on savings and loans than rival banks. It offers a rate of up to 7.99 per cent on savings accounts.

Since its launch, the bank has been inundated with over 100,000 telephone inquiries and has had 1.75 million hits on its internet website. Last week, it hired 270 extra staff to cope with demand.

It also emerged last week that an unnamed rival bank and an individual had lodged complaints with the Advertising Standards Authority, questioning whether egg's savings account should be called "instant access".

While egg allows customers to withdraw money by cashcard if they take a rate of 7.5 per cent, no cashcard is available if they want the market- beating rate of nearly 8 per cent. Instead, the money can be accessed through a transfer to another bank account or a cheque payable to the account holder.

In February, the ASA upheld an objection against a savings account offered by Direct Line. The ASA said the words "instant access" were not acceptable because customers had to transfer their money before gaining access to it.

The clause helps egg to offer better rates on its loans because of Bank of England rules on the amount of cash a bank has to hold. When customers can always take money out instantly, the rules are tougher.

It is justified in egg's literature on the grounds that it is necessary "in order for us to run our business lawfully and with prudent liquidity levels".

Mike Harris, managing director of egg, admitted that the bank could have offered an instant access account without inserting the clause but said the terms of the account had been modelled on those offered by other savings institutions. "If [this is a problem] then quite a number of accounts will have to be looked at: this is an industry problem, not an egg problem."