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ombudsman news

issue 101

March/April 2012

complaints involving cash ISAs

In many of the complaints referred to us involving cash ISAs, the consumer tried to deposit cash into an ISA towards the end of a tax year (5 April) - but the financial business was unable to carry out their instructions in time.

We also sometimes see cases where this happened when the consumer tried to top up their ISA during the tax year.

In these cases, the consumer was unable to use their ISA allowance (or part of it) for that particular tax year - and could be disadvantaged as a result. Where we are satisfied that this situation arose because of an error by the financial business, we will consider whether compensation is appropriate. Our usual approach is to tell the financial business to compensate the consumer for any financial loss they are likely to incur - as well as for any distress and inconvenience that may have been caused.

Our online technical resource on ISA allowances gives more information about this.

The following selection of recent cases includes several instances where the consumer was unhappy that their cash ISA was not set up before the end of a tax year.

We also include complaints where:

  • a bank refuses to accept the transfer of ISA funds into new cash ISA;
  • a consumer loses the tax-free status of her cash-ISA savings when she moves her money to a different provider's cash ISA; and
  • a bank imposes a penalty fee when a consumer transfers the proceeds of a cash ISA to a different provider's ISA.

issue 101 index of case studies

  • 101/1 - consumer loses tax-free status of cash ISA savings when moving the money to a new cash ISA
  • 101/2 - consumer complains that bank failed to set up his cash ISA before the end of the tax year
  • 101/3 - consumer complains that bank refused to deal with cash ISA application that arrived after the deadline
  • 101/4 - consumer complains about bank's refusal to accept transfer of ISA funds into a new cash ISA
  • 101/5 - complaint about bank's imposition of a penalty fee when consumer transferred proceeds of her cash ISA
  • 101/6 - complaint about administrative problems when paying into a cash ISA

101/1
consumer loses tax-free status of cash ISA savings when moving the money to a new cash ISA

Ms J had savings totalling £15,000 in a cash ISA with her bank. Concerned that she was not getting a good enough return on this money, she asked the bank if she could talk to one of its investment advisers.

The bank made an appointment for her but then cancelled it the day before the meeting was due to take place.

The same thing happened on two further occasions. The bank then promised to phone Ms J 'within a couple of days' to arrange another appointment.

She was still waiting to hear from the bank more than two weeks later. By then she had researched a number of different savings options online and had concluded that she could manage without the bank's advice.

Ms J decided to transfer all the money from her existing cash ISA into another provider's cash ISA, offering a better rate.

She thought that opening the new ISA and transferring her money would be a quick and easy online transaction. However, she encountered a number of difficulties.

She then thought it might be easier to transfer the £15,000 out of her ISA and into her current account, before moving the money into her new cash ISA.

Ms J was able to move her ISA savings into her current account without any difficulty. But she was frustrated to find she was not then able to transfer all of it into the new ISA.

When she rang her bank for advice, Ms J was told that she should not have taken the money out of her original ISA and put it in her current account.

She should instead have completed an ISA transfer request form, authorising the bank to transfer her savings directly into her new cash ISA account.

This would have meant she could transfer all the savings she had accumulated in her cash ISA - and the tax-free status of these savings would not have been affected.

As it was, because she had already taken the money out of her ISA, it had lost its tax-free status. So she could now only invest as much in her new ISA as the maximum permitted in that particular tax year. This was considerably less than the £15,000 she had intended to re-invest.

Ms J then complained to her bank. She said the situation would never have arisen if she had not found it so difficult to get an appointment with one of the bank's advisers.

The bank offered to pay Ms J £50 in recognition of these difficulties.

However, it said it was not responsible for the fact that she had transferred her money out of her cash ISA or for the consequences of that decision.

Dissatisfied with this response, Ms J then referred her complaint to us.

complaint not upheld
We established that when Ms J had tried to transfer the funds from her existing ISA into the new one, the website had prompted her to look at its online ISA user guide.

This explained very clearly why customers wishing to transfer funds from one ISA to another should ask their ISA provider to arrange the transfer. Customers were warned of the tax implications if they moved their money into a non-ISA account before investing it in their new ISA.

We asked Ms J if she recalled reading this information on the website. She said she was not sure.

We also asked why, even if she had not read it, she had not rung her bank when she first encountered problems transferring her money online. She said she 'just wanted to get it all sorted out quickly'.

We said we appreciated the difficulties that Ms J had experienced when trying to make an appointment with the bank. We thought it was fair and reasonable for the bank to have offered her £50 for the inconvenience this had caused her.

However, we said the bank was not responsible for her decision to transfer the money from her original ISA to her current account - or for the financial consequences of that decision. We did not uphold the complaint.

101/2
consumer complains that bank failed to set up his cash ISA before the end of the tax year

When Mr C unexpectedly inherited £10,000 from a distant cousin he decided to put the money into a cash ISA.

It was already very close to the end of the tax year and Mr C knew that there was a limit on the amount he could invest in any one tax year.

He therefore decided to open an ISA account right away and to invest half of his inheritance. He planned to pay in the rest of the money as soon as the new tax year started.

Mr C applied online for a cash ISA provided by a major bank. As he was not a customer of this bank he was asked to send the bank some documents confirming his identity before it could set up the ISA for him.

Three days after that, Mr C called in at a local branch of the bank with his documents. He was told they would be sent through the bank's internal mail system to its ISA processing department, which would then get in touch with him.

Mr C was very disappointed when he found the bank had failed to open his ISA account before the end of the tax year.

He complained that this had caused him considerable inconvenience, as he was not able to invest his money in the way he had intended. He was only able to put half of his inheritance into the ISA and had to place the remainder in an ordinary savings account.

In its response, the bank said that its ISA processing department had received Mr C's identity documents just two working days before the end of the tax year. This did not leave enough time to process his application before tax year ended.

Mr C then referred his complaint to us.

complaint upheld
The bank had been entitled to ask Mr C to confirm his identity before it opened the cash ISA. But we noted that the bank had not given him any indication of deadlines, to help ensure the cash ISA could be opened before the end of the tax year.

The transfer of his documents from the bank branch to the ISA processing department took three days. This meant they arrived too late for the bank to deal with them and set up the ISA before the tax year ended.

We accepted Mr C's point that if he had known how long the internal transfer would take, he would have made his own arrangements to get his documents to the processing department more quickly.

We upheld the complaint. We told the bank to pay Mr C the difference between the interest rate he would get on the money he had now put in a savings account, and the amount he would have got, if he had been able to invest it in the ISA, in the previous tax year.

There was nothing in the circumstances of Mr C's case to make us depart from our established approach, as set out in our online technical resource.

So we said the bank should pay interest, calculated on the assumption that Mr C would have kept this money in the cash ISA for five years. In addition, we told the bank to pay Mr C £100 for the inconvenience it had caused him.

101/3
consumer complains that bank refused to deal with cash ISA application that arrived after the deadline

Mrs B decided to apply for her bank's fixed-rate cash ISA after picking up a leaflet about it in her local bank branch. She completed her application form and - because there was a time limit for applications - she posted it to the bank using next-day recorded delivery.

Over three weeks later she had still not received any acknowledgment of her application, so she wrote to the bank to check what was happening.

In its reply, the bank told her it had been unable to process her application because it had arrived the day after the deadline.

Mrs B then complained to the bank that it had treated her unfairly. She said there was 'no excuse' for its failure to open the ISA, as she had taken care to ensure her application 'arrived promptly'.

She also said that the bank had provided 'very poor service' in failing to contact her at all until she had written to ask what was happening.

The bank apologised for its delay in letting her know that her application had been unsuccessful. However, it again told her that it was unable to open an ISA for her because she had missed the deadline.

It also explained that it was not accepting any further applications for the ISA in question. Mrs B then referred her complaint to us.

complaint upheld in part
The bank sent us a copy of its leaflet about the ISA. This stated very clearly the final date by which applications had to have arrived at its ISA processing centre. This was the date on which Mrs B had posted her application.

We were satisfied from the evidence that the bank had handled Mrs B's application promptly and in line with its normal procedures.

So we explained to her that, since her application had arrived after the deadline, the bank had been entitled to reject it.

However, we agreed with Mrs B that the bank should have acted promptly to let her know that it could not accept her application.

Interest rates had been falling during the period in question and the bank's delay meant that she had lost a small amount of interest on her money.

We told the bank to pay her £50, which would cover this loss and compensate her for the inconvenience it had caused her.

101/4
consumer complains about bank's refusal to accept transfer of ISA funds into a new cash ISA

Several years after Mrs M started investing in a cash ISA with her bank, she noticed the bank was offering a cash ISA with a better interest rate. She asked the bank to open one of these new ISAs for her and to transfer her existing ISA savings into it.

She was surprised to be told that this would not be possible. The bank said the terms and conditions of the new ISA did not allow the transfer of funds from an existing ISA.

Mrs M then wrote to the bank's head office. She said the bank was treating her unfairly, as she was now 'stuck in a lapsed account offering a poor deal'. She also pointed out that other banks allowed customers to transfer existing ISA funds into newer accounts.

In its reply, the bank told Mrs M that it had designed the newer ISA to attract savers who were not currently making use of their ISA allowance. The bank said that while it valued existing customers, it also wanted to attract new ones.

It did not agree with Mrs M that her existing ISA was a 'lapsed' account or that she was 'trapped' in it.

The bank also noted that it was a 'legitimate commercial decision' for banks to target specific types of customers when introducing new accounts or special offers, such as advantageous interest rates.

Unhappy with this response, Mrs M referred her complaint to us.

complaint not upheld
We noted that in its brochure describing the new ISA - as well as in the detailed terms and conditions - the bank stated clearly that 'transfers of funds from an existing ISA are not permitted unless forming part of your annual ISA subscription allowance'.

We did not consider that the bank was obliged to allow Mrs M to transfer her existing ISA to the new account - or that the bank was breaking any rules by refusing to do so.

We told Mrs M that it was for the bank to decide the terms on which it was prepared to offer accounts to its customers.

We also pointed out that she was not 'trapped' in her ISA. She was free to withdraw her money at any time, or to move it to any other ISA that accepted transfers. We did not uphold the complaint.

101/5
complaint about bank's imposition of a penalty fee when consumer transferred proceeds of her cash ISA

Just under a year after Mrs A took out a cash ISA she noticed that a different bank was offering a better interest rate. She called in at a branch of her bank and completed a transfer form, instructing the bank to move her savings to the new ISA.

After the bank had carried out the transfer, Mrs A was very surprised to find she had been charged a 'penalty fee' of £246.

When she queried this, the bank told her the fee was payable because she had transferred her money out of the ISA before the end of its initial twelve-month fixed-rate period.

Mrs A complained that this was unfair and she blamed the bank for carrying out the transfer 'too quickly'.

She said that as she had completed the form just a couple of weeks before the end of the fixed-rate period, she had 'naturally assumed' that her money would not be moved until the end of that period.

The bank rejected her complaint. It pointed out that the transfer form gave the bank clear instructions to 'proceed immediately with the transfer'. The form also contained a declaration that she would 'bear any consequential penalty which may be applied'.

Mrs A accepted that she had signed the form. However, she said the bank 'had a responsibility' to check she understood what she was signing. When the bank refused to reconsider the outcome of her complaint, Mrs A referred it to us.

complaint not upheld
After examining all the evidence, we concluded that the bank had processed the transfer correctly and had been entitled to charge the penalty fee.

The terms and conditions for the cash ISA set out very clearly the circumstances in which a penalty would be payable. Mrs A had signed the transfer form, giving the bank clear instructions to make the transfer immediately.

And Mrs A had confirmed to us that she had not been rushed into signing the form. She had been offered a seat in a quiet corner of the branch, where she was left to read through the form before completing it.

We considered that she should have been aware, from the wording on the form, that a penalty might be applied. So she had the opportunity to enquire about the penalty before proceeding. She could then have instructed the bank not to make the transfer until the end of the fixed-rate period.

We explained to Mrs A that, in the circumstances, we did not accept that the bank had any obligation either to check that she had understood the form - or to inform her about the penalty, before proceeding with the transfer. We did not uphold the complaint.

101/6
complaint about administrative problems when paying into a cash ISA

Just after the start of a new tax year, Mr T asked his bank to transfer £1,000 from his current account into the cash ISA he had opened several years earlier.

A few weeks later, Mr T discovered that the bank had not carried out his request. When he rang the bank's helpline he was very surprised to be told there was no record of his ever having asked for the transfer of funds.

He asked to speak to a more senior member of staff but was told that no one was available. He therefore asked that someone should ring him back as soon as possible.

The following day he got a call telling him that his transfer request had been traced but that the bank had never carried out the transaction. The member of staff who called him was unable either to explain why the money had not been transferred or to confirm that this would now happen.

Mr T then wrote a letter of complaint to the bank. In its reply, the bank apologised for the fact that its helpline had not dealt with his enquiry as well as it should have done.

The bank said that because Mr T had not paid anything into his ISA during the previous tax year, the rules of HM Revenue and Customs (HMRC) required him to make a new cash ISA application.

The bank said that when Mr T had requested the transfer of funds it had written to him to explain this. It had also sent him an application form to complete and return. He appeared never to have returned the form, so the bank had not been able to transfer his money.

Mr T was adamant that the bank had never written to him or sent him a form. He also remained unhappy about the way in which the helpline had handled his enquiry. He therefore referred the complaint to us.

complaint upheld in part
We noted that by the time Mr T referred his complaint to us, the bank had sent him a copy of its earlier letter and another application form. It had subsequently dealt efficiently with his application, transferring £1,000 from his current account into the ISA.

After reviewing all the evidence, we were satisfied that the bank had acted correctly when it first received Mr T's request to transfer funds to his ISA. It had written to him promptly, sending him a form and explaining what he needed to do before he could start using his ISA again.

Mr T was certain he had never received this letter, so we could only conclude that it had gone astray in the post.

It was clear, however, that the bank had not handled Mr T's subsequent phone enquiries well and had given him confusing and inaccurate information, causing further delay.

We told the bank to pay Mr T £75 compensation, in recognition of the inconvenience it had caused him and to cover any lost interest.