Bristol & West Building Society, which last week said it was to be taken over by Bank of Ireland, could face a legal challenge to its windfall proposals, which are expected to encourage a new type of bonus hunter.
In a unique move among the flood of demutualising societies, Bristol & West will offer a pounds 250 handout to new borrowers taking out mortgages between Monday's announcement and the end of the year.
A spokesman for the Building Societies Commission (BSC), the industry regulator, said current regulations "don't lay down very much" on such windfall proposals. He would not rule out the possibility of the regulator taking the issue to court, and said the BSC would be looking at the details of the proposals before it decides on further action. Any legal ruling against the society would force it to rewrite its windfall proposals.
Rob Thomas, building societies analyst at City stockbroker UBS, said the windfall offer was a "clever marketing exercise" in a highly competitive mortgage market. But it will directly reduce the money available for distribution as a variable bonus to longer-term savers.
Bristol & West said it did not put the proposal to the BSC for its approval before the Bank of Ireland takeover announcement because it would have been "inappropriate" and might have resulted in news of its takeover proposal leaking out. But Nick Eyre, head of the society's legal department, said he was certain the offer complied with the terms of the Building Societies Act.
Savers who face dilution are those who have had a qualifying account open since 1994 and pounds 100 of savings as of last Monday. On top of a flat pounds 500 in cash, they are being offered a variable balance-related bonus. The more take-up there is of the mortgage windfalls, the less money will be available for this extra handout.
The mortgage offer is open to people who are not yet customers of Bristol & West as well as the society's existing savers. Existing savers who take out a mortgage will be able to qualify for two windfalls based on their dual membership.
Normally, those who open accounts or take out mortgages after a demutualisation announce- ment are barred from windfalls.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies