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MONEY BOX

Presenter:	PAUL LEWIS


TRANSMISSION:	27th JANUARY 2007       12.00-
12.30pm      RADIO 4



LEWIS:	Hello.  In today’s programme, millions of 
homeowners could recover £100 or more each from their mortgage 
lender after the regulator says some charges are unfair.  The European 
Court of Justice says that a government pension compensation scheme 
is not good enough, but will it be improved?  Bob Howard’s here with 
the latest on claiming back bank charges.

HOWARD:	Are judges losing patience with banks 
who don’t seem to want their day in court?

WOMAN:	The judge is finally standing up to the 
banks and the banks’ solicitors and saying come on, stop wasting our 
time.  

LEWIS:	And should you link your gas and 
electricity bills to the wholesale price of fuel?

But first, millions of homeowners could get a refund from their 
mortgage lender after yet another ruling that the financial services 
industry has been treating its customers unfairly.  This time, the 
regulator has told banks and building societies that the fees they charge 
people to leave a mortgage deal – so called exit fees – have been 
unfairly increased after the mortgage began.  Ten years ago exit fees 
averaged less than £60.  Today, they’re more than £200, forcing 
borrowers to pay a much higher fee than they were told about when 
they took out the loan.  Money Box revealed that the Financial Services 
Authority was investigating these charges more than a year ago and last 
summer mortgage adviser Danny Lovey told us why he felt the 
regulator had to act.

LOVEY:	They’re a scandal and people like me are 
embarrassed and very irritated when lenders are putting charges up.  
What we want to do really is to keep the lenders honest and transparent.  
When they move the goalposts when the client is actually in the middle 
of a mortgage deal or towards the end of a mortgage deal, they have the 
consumer over a barrel and I just think it’s wrong.

LEWIS:	Well 6 months on, the FSA has taken 
action.  Clive Briault is its Head of Retail Markets.

BRIAULT:	We’ve told lenders that if over the last 
few years they have increased these exit fees by a substantial amount, 
then they have to decide whether to reduce the fee back to what it was 
originally when the consumer took out the mortgage or alternatively 
justify any increase that they’ve imposed.  And we believe this will be 
of benefit to millions of consumers because in the vast majority of cases 
what the lenders will do is bring the fee back to its original level.

LEWIS:	What about new customers though?  
Does it do anything for them or can a mortgage lender fix the fee at 
£500 or £1,000 as long as they then stick to that when the mortgage 
comes to an end?

BRIAULT:	They have to be absolutely clear about 
what their fees are and the basis on which any changes during the life of 
a contract could be made.  

LEWIS:	But it doesn’t have to reflect the actual 
cost?

BRIAULT:	It doesn’t, no.

LEWIS:	But what about the 6 million or so people 
who have already remortgaged in the last 5 years, paid those fees.  
What should they do?

BRIAULT:	Well if those people have paid an exit fee 
which they thought was unfairly high because they paid a fee which 
was substantially higher than the fee that they thought they would have 
to pay when they entered into the mortgage, they should complain to 
their former lender.

LEWIS:	And they should get the difference back?

BRIAULT:	Well unless the lender can justify a 
reason for the increase, then they should get the difference back, yes.

LEWIS:	And are you telling lenders to find these 
people or are they going to have to make a claim?

BRIAULT:	We’re not telling lenders that they have to 
undertake a review of all of their past business.

LEWIS:	But they must have the records.  Why 
not?

BRIAULT:	We don’t have the powers under the 
unfair contract terms to instigate a past business review.

LEWIS:	Did you ask them?  Did you suggest to 
them they might do this as part of your negotiations?

BRIAULT:	Well clearly, yes we did discuss that with 
them …

LEWIS:	And they said no?

BRIAULT:	… in terms of whether the industry would 
be prepared to do that on a voluntary basis …

LEWIS:	And they said no?

BRIAULT:	… and for something which would cover 
the whole of the industry.

LEWIS:	They said no?

BRIAULT:	Well they certainly didn’t say yes 
immediately and I think had we tried to engineer and broke such a 
solution, we would have ended up not benefiting millions of consumers 
now that probably are entering into a very protracted negotiation which 
could have gone on for a long time.

LEWIS:	Clive Briault of the FSA.  Well live now 
to Michael Coogan, Director General of the Council of Mortgage 
Lenders.  Michael, 6 months ago you defended these charges on Money 
Box despite anger by customers and advisers.  Now the regulator has 
confirmed they are unfair.  Why don’t you just refund them to 
everybody?

COOGAN:	Well I think there’s two things to be said.  
First of all, the main point from yesterday’s announcement by the FSA 
is that anyone who has a loan now, all existing customers – 11 million 
of them – won’t pay as much as they may have done.  If they have had 
their rate of exit fee reduced, that means that they won’t get any nasty 
surprises.

LEWIS:	Yes, so you’ll treat them fairly?

COOGAN:	We want to apply consistent treatment 
with past customers.  You’ll appreciate that while lenders may have had 
records about people redeeming at the time, all sorts of things may have 
happened – people moved on, moved houses.  The actual tracing 
process would have been more expensive than the cost of the actual 
refund.  It’s much better for customers through this sort of programme 
and through the press to be highlighted that they have the opportunity to 
get a refund.  It won’t need to be a complaint that goes through to the 
Ombudsman. 

LEWIS:	Right, so you won’t do it automatically.  
But if any customer asks, will your members give them the difference 
between what the charge was at the start of the deal and what they had 
to pay at the end, no questions?

COOGAN:	The key point is that existing and past 
customers are treated the same, so if any lender decides to go back to 
the original contract – and that’s what we expect most will do – that 
will be applied both to the existing customers who redeem in the future 
and any past customers who ask for that refund.  So what that should 
emphasise is that some lenders may take the view their fees are actually 
very low compared to others in the market, entirely fair and they won’t 
need to reduce them.

LEWIS:	Right, so they may say no when people 
ask for their money back?

COOGAN:	But I think what we’ll see in the next 
month – and we have a month until the end of February for all lenders 
to announce what their statement is going to be and their position – I’d 
expect that most lenders will take the view that the original contract is 
the approach which the customer would have expected, the increase is 
the nasty surprise which they wish to avoid, and they revert to the fee 
the customer was expecting to pay.

LEWIS:	Yes, so they’ll be keeping the price they 
mentioned at the start, which seems a fair thing to do, doesn’t it?  And 
what about customers who’ve already complained – many have – and 
been turned down?  They’re going to have to apply all over again?

COOGAN:	Well clearly one of the things that follows 
from the announcement is that cases which are pending with the 
Ombudsman will need to be looked at again by lenders; and we’ve 
given the message to all our membership that if there are any cases 
pending they should apply the statement and avoid the need for the 
Ombudsman to have to make a decision.  I think that’s in the benefit of 
customers to get speedier redress.

LEWIS:	And what do you think this does, this 
decision, to the trust between lenders and customers?  We trust you to 
behave fairly and yet again the Financial Services industry has been 
found to take every penny you can and hope we won’t notice.

COOGAN:	Well I think the big win for consumers in 
the announcement is through the agreement, which has been endorsed 
by the CML and its membership with the FSA.  We have across all 
existing borrowers in one announcement a solution which gives them 
all the potential benefit I’ve described …

LEWIS:	But you were forced into it.

COOGAN:	… plus the potential benefit that’s applied 
without them having to pursue cases to the Ombudsman, for refunds for 
those people who feel they’re due them.  So I think we’ve actually 
delivered a very sensible solution for the whole industry.  In terms of 
trust, it’s important for the future that lenders are transparent about their 
fees, are making it clear if they choose to vary them – and not all of 
them will – but if they choose to vary them, the basis of that variation is 
fair as well and is transparent to the customer.  

LEWIS:	Michael Coogan of the Council for 
Mortgage Lenders, thanks.  So who should claim a refund?  Money 
Box’s Jennifer Clarke’s with me.  Jennifer?

CLARKE:	Well essentially, Paul, anyone who’s 
remortgaged or paid off their mortgage in the past 5 years or so and 
who paid a higher exit fee than the one in place when they originally 
took out their loan should write to their old lender and ask for a refund.  
But just to be clear, we’re not talking about redemption penalties that 
are charged when people leave special deals early.  This is about the 
administration fees levied when you pay off a mortgage – sometimes 
also called “sealing” fees or “deeds release” fees.

LEWIS:	And how much might people get back?

CLARKE:	It’ll depend on who your lender was and 
when you took out your original loan.  To give one example, Alliance 
& Leicester put its exit fee up to a record £295 in August 2004.  That 
fee had been just £160 nine months earlier.  That’s exactly the kind of 
increase which the FSA now says is unfair and Alliance & Leicester 
customers could now be entitled to the difference between those 
figures: £135.  That’s the sort of amount people could typically expect 
to get back but, as ever, the precise amount will come down to the 
details of each case.

LEWIS:	And how can you check what the fee was 
when you took out your mortgage?

CLARKE:	Well the figure should be somewhere in 
the paperwork you were given at the time, so it’s worth routing around 
to see if you can find it.  If you don’t have it, the lender in question will 
certainly know, so why don’t you ask them?

LEWIS:	Always keep that paperwork.  Thanks, 
Jennifer.  And you can have your say about mortgage fees on our 
website, bbc.co.uk/moneybox, and Vincent Duggleby will take all your 
questions about mortgages on Money Box Live on Monday.

The European Court ruled this week that the government’s 
compensation scheme for people whose company pension was wound 
up before April 2005 wasn’t good enough under European law.  The 
case was taken by more than 800 members of the pension scheme of a 
firm called Allied Steel and Wire, which collapsed in 2002, leaving the 
scheme without enough money to pay the pensions it had promised.  
Employee John Benson explained the devastation caused by the loss.

BENSON:	People are giving you sympathy, but we 
don’t need sympathy; we need our pension.  It’s destroying families.  
It’s virtually destroyed mine and I get up in the morning and I think 
what have I done wrong to lose my pension; I go to bed at night 
thinking the same thing.  It’s actually destroyed my life.  I just can’t 
contemplate the future.  You know it’s terrible.

LEWIS:	John will get just a fraction of the pension 
Allied Steel and Wire promised from a compensation scheme set up by 
the government.  It was that financial assistance scheme, which the 
European judges said was “not generous enough”.  Naturally, the 
unions who took the case see that as a victory.  Michael Leahy is 
General Secretary of Community, which represents almost all the 
Allied Steel and Wire employees.  

LEAHY:	We were extremely pleased that the 
European Court of Justice upheld our principal point to the court that 
successive governments since 1980 had been acting unlawfully in not 
protecting pension funds.  It is a victory in the sense that we proved our 
point.

LEWIS:	But ministers see things rather differently 
because the court also said that governments were “not obliged to step 
in and pay lost company pensions in full”, so the government here sees 
the decision in a positive light, as Pensions Minister James Purnell 
made clear just after the judgement to Radio 4’s The World At One.

PURNELL:	We actually think that it’s a 
commonsense judgement and it recognises that the law does not require 
member states to ensure that pensions are guaranteed in full.  Of course 
everyone has sympathy for people who’ve lost their pensions and that’s 
exactly why we’ve put in place the Financial Assistance Scheme to help 
people, but we know that the court recognises our argument, which is 
always that we’ve had to balance the taxpayer’s interest against that of 
people who’ve had losses.  And you know these were promises made 
by employers and by trustees to their employees.  They were not 
provided by the government.

LEWIS:	James Purnell.  Well although the judges 
said that state protection did not have to provide full compensation, 
they didn’t say what level it should be to satisfy European law.  Ivan 
Walker of solicitors Thompsons took the workers’ case to Europe.

WALKER:	We don’t have the clarity which either 
side would particularly like.  Essentially the court are saying that the 
Financial Assistance Scheme doesn’t meet the requirements of 
European law.  What we would like to see a bit more detail on is quite 
what level the Financial Assistance Scheme has to provide.  What the 
European Court has told us is that it’s not 100% and that it’s more than 
50%.

LEWIS:	They don’t expect the government to 
replace all the pension, but they have to replace more than half of it.  
But of course the Financial Assistance Scheme does that, doesn’t it?  It 
replaces 80% of the pension for some of the people.

WALKER:	Well it does for some of the people, but 
the two issues that the European Court did single out when they 
criticised the Financial Assistance Scheme was first the inadequate 
level of benefits that some people get and, second, they mentioned 
specifically the fact that some people don’t get anything and the court 
was clearly unimpressed by that.

LEWIS:	So is your view that after this hearing 
some improvement to the Financial Assistance Scheme is bound to 
happen?

WALKER:	I would think so.  I think it’s bound to 
happen and I think we need to look at this now in terms of who is going 
to get to look at this question next.  The court proceedings are 
inevitably going to take a little bit of time before they go back to the 
High Court.

LEWIS:	So that’s the next step, is it?

WALKER:	That’s right.

LEWIS:	This automatically goes back to the High 
Court?

WALKER:	It automatically goes back to the High 
Court.

LEWIS:	But whatever the High Court decides, that 
can then be appealed further presumably?

WALKER:	Yes, it could go on appeal to the Court of 
Appeal and then to the House of Lords.

LEWIS:	So this is going to take a long time, isn’t 
it, and the people affected have been waiting a long time anyway and 
they’re not getting any younger?  Some of them, as I understand it, have 
already died since this action began?

WALKER:	Yes, that’s absolutely right, the court 
proceedings could certainly take years to come.  But before we get that 
far, there’s going to be the subject of amendments to the Pensions Bill, 
so it’ll be debated in the House of Commons.

LEWIS:	Just to be clear, these are backbench 
amendments; they’re not government amendments?  If the government 
has a majority, it might just reject them?

WALKER:	Well that’s right, but the government is 
faced with the fact it knows it has to improve the Financial Assistance 
Scheme.  The logical place and time to make those improvements will 
be as the Pensions Bill is going through Parliament.  That’s why I 
would like to see personally the issue resolved without having to take it 
back to court, through the parliamentary process.

LEWIS:	Ivan Walker of Thompsons.  Well Money 
Box asked the Department for Work and Pensions if it accepted that the 
Financial Assistance Scheme was incompatible with European law.  A 
spokesman wouldn’t answer the question directly, but he said the 
judgement only takes account of the scheme before it was improved in 
May last year and added there was no further comment at this time.  
Well no doubt we’ll be returning to the story.

As we’ve reported on Money Box before, customers trying to reclaim 
bank penalty charges which may be illegal are having to go to the 
courts to get them back.  But although the banks force them into court, 
they then don’t defend the action and pay up before a judgement is 
reached.  Now Money Box has learned that some judges are losing 
patience with the banks’ approach.  Bob Howard reports.

HOWARD:	I’m outside Brentford County Court in 
West London, one of 220 throughout England and Wales.  So far this 
year, this court alone has seen seven cases listed involving customers 
trying to reclaim charges from their banks.  All of them were settled 
before the hearings.  Now a judge in Lincoln has issued an order to at 
least one bank, threatening to throw its case out before it’s even due to 
be heard unless it can prove it intends to contest the case in court.  

ORDER:	The court of its own notion is considering 
striking the defence out as an abusive process on the basis that it has 
settled all previous claims of this nature.  If the defendant objects to this 
course of action, it is to file at court within fourteen days a schedule 
setting out a list of all claims it has pursued to trial and all claims it has 
settled.

HOWARD:	The words of Judge Toombs.  He told 
Money Box he couldn’t speak about “ongoing cases”, but it’s believed 
he’s made at least six of these orders.  So far it seems the banks have 
decided to pay out rather than have to list all the claims against them 
and their outcome.  Marc Gander from the Consumer Action Group 
website says the orders are “significant”.

GANDER:	This judge seems to be giving the banks 
either between 7 to 14 days basically to explain themselves and to 
demonstrate that they are going to be serious litigants or the case will be 
struck out.  The people who claim are led basically a song and dance 
through the procedural obstacles of small claims litigation, which can 
take anything between 3 to 4 months, but finally this judge is putting a 
stop to it.

HOWARD:	Karen is one of the bank customers who’s 
benefited from one of Judge Toombs’ orders.  She went to court to 
reclaim £250 in charges which Lloyds TSB put on her credit card 
account.

KAREN:	It means a heck of a lot because the judge 
is finally standing up to the banks and the banks’ solicitors and saying 
come on, stop wasting our time – either pay up at the beginning or let’s 
have somebody in court and bring your defence into court.  If this 
judge’s order is going to make the banks think twice about taking it as 
far before they actually settle or in fact turn up in court and answer to a 
case, then that will be wonderful.

HOWARD:	Peter Cable from Newark in 
Nottinghamshire has received the same order, also against Lloyds TSB.  
He’s claiming back £2,400.  He hopes other judges will follow suit.  

CABLE:	I think it would be a wake up call for the 
banks.  It would certainly make the banks realise that they have to treat 
this issue seriously and it’s not just an annoying instance that they hope 
will go away.  I believe this is now an attempt to call their bluff and say 
are you serious, in which case we’ll deal with it; if not, don’t waste our 
time.

HOWARD:	The banks have always insisted that their 
charges are both lawful and fair.  Lloyds TSB says it has now settled 
Karen and Peter’s claims, but in a statement it questioned the judge’s 
right to threaten to strike out its defence.

STATEMENT:	The judge made his order without a 
hearing, so we were not given a chance to make representations.  We 
believe that the order was legally flawed.  We judge cases on an 
individual basis and in this case made a decision to settle.  Had we not 
settled, we would have applied to set the order aside.

HOWARD:	Judge Toombs’ actions have certainly 
caught the attention of other district judges as they decide how best to 
deal with the thousands of bank charge cases reaching their courts.  
Judge Paul Collins speaks on behalf of county court judges in London.

COLLINS:	It’s obviously in the interests of 
consumers that there should be clear guidance as to how these cases are 
to be dealt with.  Nobody can approve of the situation which exists at 
the moment, which leaves so many people in the dark as to what the 
banks’ real intentions are going to be, and I think I’m speaking for all 
judges who deal with these cases when I say it would be very desirable 
to have a test case to see whether or not the arguments being put 
forward by the banks are sustainable or not.  And the present position 
must be a matter of frustration to judges and I agree with them.  

HOWARD:	Judge Collins has tried to hasten a ruling 
by referring his bank charge cases to a higher court.  Yet again, they’ve 
all been settled before they could be heard.  Here at Brentford County 
Court, the great bank charge claims bonanza goes on with another five 
cases already listed for next month.

LEWIS:	Thanks, Bob.

As the wholesale price of gas tumbles – and it’s now barely half what it 
was a year ago – the bills we pay to heat our homes remain stubbornly 
high.  Well one major energy supplier is now offering customers the 
chance to link their domestic gas and electricity bills to that changing 
wholesale price of energy.  I asked Richard Frost of Npower how this 
new tracker scheme worked.

FROST:	It’s a chance basically for people to link 
their prices more closely and more immediately to the current 
wholesale price of energy.

LEWIS:	What does it track – gas prices, electricity 
prices?  How does it work?

FROST:	Well you can do both.  It tracks the Heron 
index, which is a very well publicised index which measures the cost of 
wholesale gas and wholesale electricity prices.

LEWIS:	So if the index has fallen, your prices will 
fall by the same amount?

FROST:	Well the fuel cost is about two thirds of 
the total cost – so, for example, if the index goes up by 3%, the cost of 
fuel will take your bill up by about 2% and vice versa if things actually 
go downwards.  

LEWIS:	But we know that gas prices are falling.  
They’ve fallen by more than 50% over the last year.  Wouldn’t it be 
better just to pass on this fall to your customers rather than lock them 
into the current price?

FROST:	The reason that you’re not seeing prices 
tumbling now is because they never went up to match wholesale prices 
in the first place.  Since 2002 wholesale prices have gone up by 200%, 
so npower and some of the other energy providers have protected our 
customers from the worst effects of the massive wholesale price rises.  
That’s why you’re not seeing prices coming down at the moment.  
That’s why we’re actually offering people a choice of whether they’d 
like to link more closely to wholesale prices currently.

LEWIS:	Well listening to that is Ann Robinson 
and she’s Director of Consumer Policy at uSwitch.com, which of 
course makes its money by people changing their energy supplier.  Ann, 
is this a good idea?

ROBINSON:	We always welcome another product, but 
like any new product I think it’s really important to look at the small 
print.  In the last 12 months we’ve seen retail prices going up by an 
average of 38%.  We know the companies are thinking about reducing 
prices this year and so they should.  Now the problem with this 
particular product is that people are trapped into a price that reflects the 
high wholesale price.

LEWIS:	But of course if prices do fall further, 
they will benefit from that, whereas other customers might not?

ROBINSON:	Personally I don’t think that the 
wholesale prices are going to drop that much more, so in fact there’s 
more to lose by being locked into this very high price than there is to 
gain from any future drops in wholesale prices.

LEWIS:	So, Richard, this is just a cunning ploy 
really.  You’re encouraging people to lock in at the moment the market 
is not going to fall any further.

FROST:	There’s no locking in here at all.  If 
people want to leave that tracker tariff, then they’re at perfect liberty to 
do so.

LEWIS:	But the price people are starting at is the 
highest price.  You’re not giving people the benefit of the 50% fall in 
prices over the last year.  You’re saying we’re going to lock you in at 
this price before we implement those cuts.

FROST:	Our first review will be based on 3 
months – February, March and April – and we will contrast that with 
the 3 months of November, December, January.  I think that’s giving 
people a very fair crack of the whip indeed.

LEWIS:	But British Gas has already said it will be 
cutting its tariff in the spring.  Is this just a ploy to attract its customers 
to you before they cut their prices in 2 or 3 months time?

FROST:	Unfortunately they haven’t actually said 
by how much and they haven’t said when, so it will be interesting to see 
what they do.  We’re actually making a positive move now, which 
actually allows people to link in with wholesale prices immediately.

LEWIS:	Ann Robinson, what do you think other 
suppliers are going to do?

ROBINSON:	Well I think they are all going to cut their 
price and we’re looking about double percentage cuts, well over 10%.  
Can I just make one really important point and that is that this tracker is 
actually more expensive than npower’s online tariff, so people are 
already paying £109 more if they get involved in this tracker than the 
online.  And there is an even cheaper online tariff, which is with 
Scottish Power, which is £117 cheaper.  So you’re paying a premium 
on a premium, in my view.

FROST:	I think there are a range of tariffs around.  
The cost that we’re looking at for npower tracker mirrors our standard 
tariffs.  It’s certainly true that we have some cheaper tariffs than our 
standard tariffs for people who choose to sign online, but I think in 
general we will find for a particular number of people this will be an 
attractive option.  I don’t think it’s going to be for everyone, but it will 
be attractive for some.

LEWIS:	And let me ask Ann Robinson who it’s 
for?

ROBINSON:	Well I’ll tell you what.  We saw the 
capped fixed price tariffs.  They looked superficially attractive, but 
there were only a couple that were really any good for consumers.  So 
my warning to people is if it looks superficially good, just make sure it 
is good and look at the small print.

LEWIS:	Anne Robinson of uSwitch and Richard 
Frost of npower. 

And, Bob, next week’s strike by civil servants may disrupt the self-
assessment tax deadline.

HOWARD:	That’s right, Paul.  Members of the PCS 
Union are striking next Wednesday, which is the last day to get your tax 
return in.  Many Revenue offices are expected to be shut and they don’t 
all have letterboxes.  If the strike means you can’t deliver your form on 
Wednesday, the Revenue has told Money Box you’re unlikely to be 
fined as long as it’s in as soon as possible the next day. Better still, of 
course, get it in before the deadline.

LEWIS:	Indeed.  Thanks, Bob.  Well that’s it for 
today.  You can find out more from the BBC Action Line – 0800 044 
044 – and of course our website, bbc.co.uk/moneybox, where you can 
contact us and of course join the debate on mortgage fees.  Tell us your 
experiences and thoughts.  Don’t forget our phone-in Money Box Live 
on Monday afternoon.  Vincent Duggleby’s here to take all your calls 
on mortgages.  I’m back next weekend with Money Box.  Today the 
reporter was Bob Howard, the producer Jennifer Clarke, and I’m Paul 
Lewis.


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