Mrs J invested £10,000 in the firm’s guaranteed capital bond – a five-year bond that guaranteed to return all the investor’s capital at the end of the five years. It promised to pay the equivalent of more than 8% per year if the FTSE 100 index (Financial Times – Stock Exchange 100 index) did not fall during the bond’s 5-year term. This was to be measured by comparing the FTSE 100 index at the start of the bond with the average figure for the bond’s last six months – to even out any undue fluctuations.
When Mrs J’s bond reached the end of its term, the firm told her that as the FTSE 100 had fallen, she would get her capital back, but no more. The firm rejected Mrs J’s complaint that she would receive no interest on her money, so she brought the complaint to us.
Guaranteed income bonds, called "precipice bonds" by some commentators, are investment products – to which the normal rules about investment advice apply. Typically, the income is guaranteed for the life of the bond – but may be paid out of capital if the stock market falls substantially (as it has done), so that the capital starts to disappear.
However, guaranteed capital bonds, like the one Mrs J took out, are a quite different product. They are really fancy deposit accounts – and the normal rules about investment advice do not apply. Typically, the customer is guaranteed to get their capital back at the end of the bond’s term – but if the stock market falls (as it has done) there is no income.
The firm was not required to volunteer advice to Mrs J or to carry out a "fact find", detailing Mrs J’s financial circumstances and objectives, before she put her money in the bond. It did not, in fact, give advice. The product literature provided a clear explanation of how the account worked. In reality, Mrs J knew the deal she was making at the time. From the information and evidence we were given, we concluded that she had been content with the bond when she took it out but later wished to change her mind, with the wisdom of hindsight. We did not uphold her complaint.
Mr and Mrs A and Mr C were the directors of G Ltd and had given the bank personal guarantees for G Ltd’s account with the bank. In February 2002, Mr C authorised a payment that resulted in G Ltd’s account becoming £3,000 overdrawn. In March 2002, Mr and Mrs A told the bank they had resigned as directors. The following month the bank called in the overdraft, and claimed against Mr and Mrs A and Mr C under their personal guarantees.
Mr and Mrs A said they were not liable because they had sacked Mr C in February 2002, and had told the bank to cancel his signing authority.
The bank said it had no record of Mr C’s authority being terminated. Mr A claimed that he had phoned the bank to cancel Mr C’s signing authority, speaking first to the branch and then being transferred to the business centre. He produced a phone bill which he said confirmed the call. However, leaving aside the formalities normally necessary in order to change a company’s signing authorities, the call was only 20 seconds long – which was insufficient time to cover what Mr A said had happened. We therefore rejected the complaint.
Mr N owned and ran Z Ltd. In 1998, Z Ltd was wound up. The following year, Mr N set up a new company, which he also called Z Ltd.
In 2000, Mr N received a cheque for £5,000 payable to Z Ltd. He told the bank that it related to the "old" Z Ltd, wound up in 1998, and he asked the bank to pay the money into his personal account.
In 2001, Mr N sold Z Ltd. Some while later the new owners of Z Ltd heard about the £5,000 cheque. They said it belonged to the "new" Z Ltd, that they had bought the previous year. The money was still with the bank, in Mr N’s personal account, so the "new" Z Ltd claimed the money from the bank. The bank then "froze" the money, which meant that Mr N could not withdraw it. When the bank rejected Mr N’s complaint that it should not have done this, he came to us.
The cheque was payable to Z Ltd, and was received after the "old" Z Ltd was wound up and the "new" Z Ltd was formed. So it was clearly arguable that the money might well belong to the "new" Z Ltd.
The bank acted correctly in freezing the money, so that it could be preserved until the dispute between Mr N and the "new" Z Ltd was resolved. The "new" Z Ltd was not a party to the complaint, and we had no power to decide whether or not the money belonged to it. The real dispute was not between Mr N and the bank; it was between Z Ltd and Mr N. That could only be resolved in court.
Mr and Mrs H planned to sell their house in the UK and emigrate to New Zealand. They asked the bank’s advice about how they could protect themselves against an adverse movement in exchange rates while they were waiting to sell the house.
After a meeting with the bank, Mr and Mrs H signed an instruction, drafted by the firm, to arrange an "option" to convert £150,000 into New Zealand dollars three months later. (In essence, an option gives the buyer the right to purchase a commodity – in this case currency – at a pre-determined price at a particular date in the future.)
Mr and Mrs H were very surprised when, at the end of the three months and without any consultation, the bank went ahead and bought the New Zealand dollars on the couple’s behalf. The couple complained, saying that they had understood they had only arranged an option to buy the dollars – they not instructed the bank to go ahead and buy them. It had taken longer than they had expected to sell their house and they still had not found a buyer, so they had no immediate plans to move.
The bank told Mr and Mrs H that options were not available for transactions under £500,000 and that the couple were obliged to accept these dollars, since they had committed themselves to a binding forward-exchange contract.
We did not consider that this was the sort of transaction that many customers would be familiar with. It was therefore up to the bank to explain clearly to Mr and Mrs H the nature of the transaction and the obligation that they were taking on. It failed to do that. And the instruction it drafted for the couple to sign clearly referred to an "option". Since at the time they signed, Mr and Mrs H did not know when their house sale would go through, we did not think they would knowingly have committed themselves to anything more than an option. We required the bank to compensate them for their loss, plus interest.
Mr F applied successfully for a £2,000 loan, after reading about the government initiative to encourage people to obtain training with the help of a "career development loan". Under this system, the government provides applicants with a list of banking firms prepared to lend the money needed for course fees. If the application is successful, the firm concerned sends the money direct to the training provider. The government then agrees to meet the interest payments on the loan until the student has reached the end of the course.
Unfortunately, in Mr F’s case, the training provider went out of business soon after he started his course. Mr F felt that, in the circumstances, he should not have to repay the loan and he contacted the bank about this. Mr F thought that, since the bank had sent the money direct to the training provider, the transaction constituted a debtor-creditor-supplier agreement as covered by section 75 of the Consumer Credit Act. If this were the case, then the bank would be equally liable, with the training provider, for the provider’s breach of contract. When the bank rejected his complaint, Mr F came to us.
We agreed with the bank that section 75 of the Consumer Credit Act did not apply in this instance. For a debtor-creditor-supplier agreement to exist, there has to be an arrangement between the creditor (the bank) and the supplier (the training provider). There was no such arrangement here. The only reason why the bank had paid the money to the training provider was to comply with the government’s rules for the scheme, not because of any arrangement between the bank and the training provider. So Mr F was still liable for the loan.
Mr K’s wallet, containing his credit card and a heavily disguised note of his security PIN number, was stolen from his car. Shortly afterwards the thief used the card to make a series of cash-machine withdrawals that increased the debit balance on Mr K’s account by £2,000.
The firm held Mr K liable for this, saying that he had been "grossly negligent" in keeping a disguised note of his PIN number with his card. Mr K then complained to us.
We reminded the firm that the gross negligence provisions in the Banking Code do not apply at all where a card is used to incur credit, rather than to spend money that is already in the account. That is because the Consumer Credit Act applies, and limits the cardholder’s liability for withdrawals on a stolen card to £50.
Mr T needed a new engine for his car and he advertised for a second-hand replacement. J Ltd replied to the advertisement and it arranged to send him an engine, after taking Mr T’s credit card payment over the phone.
However, when the engine arrived, it did not match the specification. Mr T was unable to get J Ltd to agree to refund his money. He therefore claimed against his credit card firm because, in the circumstances of this case, it was equally liable with the supplier under section 75 of the Consumer Credit Act.
The credit card firm suggested that Mr T should return the engine to J Ltd by registered post and said it would then try to claim a refund. However, Mr T did not think it was practicable to post a car engine, and he discovered that it would cost £200 to send it back by courier. Unwilling to increase his losses by paying for a courier, Mr T pursued his claim against the credit card firm. However, the firm refused to deal with it because it said there was insufficient documentary evidence.
We were satisfied that there was sufficient evidence of Mr T’s claim against J Ltd, and that the credit card firm was equally liable. The credit card firm should therefore have settled Mr T’s claim. We required it to refund the price of the engine, plus the interest it had charged on Mr T’s card. We also said it should pay Mr T £200 for causing him unnecessary inconvenience. And we required the credit card firm either to take the engine away, or to pay for Mr T to send it back to J Ltd.
Mr C was the sole director of C Ltd. The company secretary, Mrs G, took out a company credit card with the bank and asked for repayments to be collected by direct debit from C Ltd’s account.
After purchases totalling around £30,000 had been made with the credit card in the first nine months, Mr C complained to the bank. He asked the bank to repay all of the expenditure on the card to C Ltd as he said he did not know about the credit card and he assumed that his signature on the application form must have been forged.
The bank arranged for a handwriting expert to check the signature, but his report was inconclusive and the bank said there was no evidence to support Mr C’s claim that he knew nothing about the credit card.
Although Mrs G had carried out some transactions with the credit card that appeared to be personal, most of the transactions clearly related to C Ltd’s business.
The mandate for C Ltd’s bank accounts would have allowed Mrs G to sign the application herself. She would not have needed Mr C’s signature in order to obtain the card, so there would have been no need for her to resort to forgery. And, although Mr C denied the signature was his, he accepted that Mrs G often gave him large amounts of paperwork to sign, and he signed without reading what he was given. We concluded it was more likely than not that Mr C did sign the credit-card application and we rejected the complaint.
In 2000, Mr and Mrs O took out a mortgage that included:
When the discount expired in 2002, the firm refused to let Mr and Mrs O change to another mortgage in its range unless they paid the early repayment charge. Mr and Mrs O paid under protest and complained to us.
This was not a case where Mr and Mrs O could change products only with the firm’s consent, which the firm could then make conditional on payment of a fee.
The mortgage contract had specifically promised that Mr and Mrs O could change products when the discount expired. The contract said the early repayment charge was payable if Mr and Mrs O redeemed the mortgage. It did not say the charge was payable if they changed mortgage products. If that was what the firm intended, it should have put that in the mortgage contract. We required the firm to refund the charge, with interest.
Mr and Mrs A took out an endowment mortgage with the firm, making regular payments. After a while they decided to pay the firm £100 extra per month, with the intention of paying off the mortgage early.
Eventually, the couple discovered that the firm had never set up the endowment policy intended to repay the capital. If the firm had done so, the policy would already have been worth £6,000. So Mr and Mrs A owed £6,000 more capital than they would have done if things had gone according to the original plan. But their extra payments of £100 per month had reduced the capital owed on the mortgage by £2,000. So the firm said the couple were really only £4,000 worse off than they should have been. Mr and Mrs O complained to us that it was unfair of the firm to take advantage of the fact that they had made additional voluntary payments.
We decided that, by failing to arrange the endowment policy, the firm had caused Mr and Mrs O a loss of £6,000. So that was the figure the firm should have used as the basis for calculating compensation. The evidence showed that Mr and Mrs O could easily have made the additional monthly payments even if the endowment policy had been set up.
ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.
The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.