Judgement was delivered last week in the judicial review of the decision of the Financial Ombudsman Service regarding the interest paid on Norwich and Peterborough Building Society's TESSA Select Account. The Court found in favour of the Ombudsman.
N&P announced before commencing legal action, that if it was unsuccessful, it would pay extra interest to members with qualifying TESSA accounts. This payment will amount to an estimated £1.3 million.
This issue arose following the government's withdrawal of TESSAs and its introduction of ISAs in April 1999. A member of N&P had complained that the Society had paid a higher rate of interest on its Mini Cash ISA than on his TESSA Select Account from April 6 1999 to September 19 2000, whenthe Society's variable TESSA rates were raised to equalise them with its ISA rates.
The Ombudsman decided in favour of the member and directed the Society to pay him compensation based on the difference in the interest paid on the Society's TESSA Select Account and its variable rate TESSA Only ISA.
N&P believes that the Ombudsman's decision was wrong in law and unfair and was given permission by the High Court to seek a judicial review.
The Court has issued a 71 page judgement, which N&P will be studying carefully. From its preliminary reading the Society says it appears that the Court has accepted that N&P did not downgrade its TESSAs on the introduction of ISAs and that the Society was very competitive in the rates that it offered. However the Court seems to have agreed with the Ombudsman's approach in disregarding the fact that N&P's interest rates were high compared with others in the market.
Matthew Bullock, N&P chief executive, says: “We will be making payments and crediting the accounts of our TESSA members who were in this position within the next four weeks, irrespective of whether or not they complained.
“The fact remains that throughout the period in question, from April 6 1999 to 19th September 2000, we consistently paid our members amongst the top rates of the major bank and building society providers of TESSA and ISA accounts, and we did not downgrade our TESSA accounts either before or during this period. We genuinely believed that this was a very fair way to behave.”
“We are disappointed at the outcome but we had to ensure that the interests of all our members were properly considered, not just those that complained.”