News: No mercy for Abbey as FSA orders review of endowments

Bank fined for mishandling complaints; electronic transfers to be speeded up; advisers criticised over property schemes

Some 50,000 Abbey customers will have their rejected complaints over endowment misselling reviewed after the lender was found guilty of mishandling the grievances.

Some 50,000 Abbey customers will have their rejected complaints over endowment misselling reviewed after the lender was found guilty of mishandling the grievances.

Abbey, now owned by Spanish bank Santander, was fined £800,000 by the City watchdog, the Financial Service Authority (FSA), last week for maladministration and for supplying the regulator with "potentially misleading" information.

The FSA found that, between 1 October 2001 and 30 September 2003, Abbey mishandled 5,000 complaints out of 20,044 considered, and rejected 3,500 of these when they should have been upheld. The other 1,500 mishandling cases related to incorrect levels of compensation or delays.

"By putting its own interests ahead of those of its customers with a mortgage endowment complaint, Abbey has singularly failed to treat its customers fairly," said Clive Briault (pictured below), the director of retail markets at the FSA.

Endowment policies were sold heavily in the 1980s and 1990s as a way of paying off a mortgage at the end of its term - and leaving a tidy lump sum for the borrower too.

However, the failure of advisers to point out the risks of stock market falls, and the possibility of endowments not paying out the stated sum, has led to a flood of mis-selling claims.

The FSA also reported that between 1 January 2001 and 31 December 2004, Abbey had received roughly 65,000 mortgage endowment complaints in all.

Although the bank said that it had not launched a detailed investigation into every three-month period of this four-year spell, it accepted it was likely that similar levels of failure would have occurred throughout. Abbey said it would now review all mortgage complaints from 1 January 2000 - a total it put at around 50,000 because some have already been resolved - and pay redress where appropriate. It will write to those customers affected by 22 June to explain its actions.

Abbey is also to re-examine its overall handling processes.

The bank's supply of "potentially misleading" information relates to the months of April and May in 2002, when it told the FSA that it was already applying advice given to it by the regulator regarding the complaints-handling process. A subsequent FSA investigation found that this was not the case, and described the lender's behaviour as "unacceptable".

Last week's fine was handed out more than a year after the Treasury Select Committee suggested that the number of endowment policies mis-sold in the UK could possibly be as high as 50 per cent.

Cash in a flash

The time taken to transfer money electronically from one bank account to another is to be cut from three days to one.

The clearing changes, to be implemented by a taskforce spearheaded by the Office of Fair Trading (OFT), will put an end to the current delay that enables the banks to pocket £30m in interest every year, according to the OFT

At the moment, money that disappears from your account to settle bills and standing orders, or to pay for goods over the telephone or internet, is taken out of your account immediately. During the clearing period, which averages three days, banks benefit from interest on the money until the target account is credited.

The taskforce wants a new system to be put in place so that, if you arrange a transfer before midday, the funds reach their destination later that same day.

However, it is expected that the new, speedier service will take around two years to implement as banks upgrade their systems.

The tardiness of electronic transfer in the UK was first highlighted in 2000 when the Cruickshank report suggested that consumers and small businesses were losing out on hundreds of millions of pounds because of the delays.

Direct debits are not affected since these are set, regular payments activated between your bank and your target company, unlike other transfers and standing orders that rely solely on your instruction.

Meanwhile, the OFT has also referred a supercomplaint from consumer body Which?, regarding banking practices in Northern Ireland, to the Competition Commission.

The commission will now investigate the operation of current accounts to see if there is evidence of anti-competitive practices.

Equity-release warning

Homeowners keen to tap into high house prices through equity-release schemes are in danger of being poorly advised, the FSA warned on Tuesday.

Following a study of the sector and mystery shopping exercises, the regulator expressed alarm that too many advisers were recommending these schemes without properly explaining the implications to customers.

The equity-release market has mushroomed in the past few years as rising house prices have offered "cash poor, property rich" pensioners a chance to unlock the new value in their homes.

Two schemes - a lifetime mortgage and home-reversion plan - offer you either a cash lump sum or annual income in return for a stake in your house.

However, the FSA's research found that some advisers were persuading homeowners to release more cash than they needed and then, with help from the adviser, to invest the surplus into other products such as investment bonds.

In other cases, equity-release schemes taken out to mitigate inheritance tax (IHT) bills actually ended up leaving individuals worse off.

"It is extremely important that advisers ensure anyone considering equity release understands what is involved," an FSA spokesman said.