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Covert rate cut victim? Claim compensation today

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In February, Your Money exposed the scandalous treatment of savers by banks.

In our report, we revealed that up to 20 per cent of savers had the rate of interest paid out on their savings accounts reduced in the past three years, without being informed by their bank.

Banks can erode savers’ rates by stealth due to exceptions in FCA regulations. Current rules allow for unannounced cuts of up to 0.5 per cent annually – as long as individual reductions do not exceed 0.25 per cent. Savers with less than £500 in their account needn’t be notified at all. Such covert cuts could have cost savers a combined £4.7bn, with banks then using these savings to subsidise more attractive rates offered to new savings account customers and account switchers.

However, if you’ve fallen victim to this practice, all is not lost. If you believe you have lost money by your rate being cut, and weren’t properly informed, you can complain to the Financial Ombudsman Service (FOS). Even though such practices are apparently within the rules, the FOS have announced that they will investigate and seriously consider all claims.

The FOS highlights a number of complaints which have been upheld in the past year, including a mature saver who lost £125 annually on her ISA due to such cuts. She was not told about the cuts, despite having been a customer of the building society for two decades. The offending building society claimed that the reductions were requisitely small in percentage terms that it “felt it didn’t have to personally notify the customer.”

In another case, a 12-month ‘introductory bonus’ rate offered to a young saver was effectively cancelled after just six months. The FOS found in the claimant’s favour, as “we couldn’t identify any grounds upon which the bank was allowed to do this.”

By law, a savings account provider is only obliged to inform a customer of a rate cut if the change is deemed to be ‘material’. However, while cuts of 0.25 per cent and below aren’t ‘material’ according to current rules, the FOS has announced that “what is considered material is very much down to the individual case in point, and the individual circumstances.”

When assessing whether a cut was ‘material’ or not, the FOS will consider how much money is in an account, how much a customer stands to lose (or has lost) from a rate change, and whether the customer should have been informed (or, if a customer has been informed, how long they have had to consider the cut).

“As the Ombudsman complaints show, some banks are deliberately misinterpreting and exploiting loopholes in pursuit of greater profits, in a way that is not fair for the customer,” says James Daley of campaigning group Fairer Finance, speaking to the Telegraph. “I’ve never understood why banks are not obliged to personally inform their customers of every change to their interest rate – no matter how small.”

“There are many ways that banks conceal information from savers,” Daley continues. “A common ploy is failing to outline the interest rate on annual statements. This is done to discourage switching – the current savings business model is based on profiting from customer inertia. We need firmer regulations in place to compel banks to communicate clearly with customers.”

Anna Bowes of Savings Champion believes that current rules “haven’t kept up with the way the savings market has changed.”

“Current guidelines on unannounced cuts were introduced five years ago, when interest rates were far higher. Now, 0.25pc is a substantial reduction in interest, as savings rates as a whole have fallen…the best-buy ISA has dropped from 2.55 to 1.5 per cent, for example,” Bowes concludes.

“We would welcome the Financial Ombudsman Service allowing customers to claim compensation should they lose interest from ‘unclear’ rate reductions,” comments Craig Donaldson, CEO of Metro Bank. “We find it shocking that current FCA rules permit providers to reduce interest rates up to 0.5 per cent per year, without having to inform customers. We firmly believe that banks should be obliged to let customers know personally about every rate change, and at the same time, inform customers of any better suited products available to them.”


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