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Building Societies (Switched Accounts) Bill [H.L.]

7.29 p.m.

Lord Dubs: My Lords, I beg to move that this Bill be now read a second time.

At the outset perhaps I may declare an interest in that I have a small sum of money in one of the Cheltenham and Gloucester Building Society accounts, although I am bound to say that, if the Bill goes through, at best it could not make any difference to my assets and at worst I might be worse off if the amount of money available for distribution has therefore to be spread more thinly. Although I appreciate my noble friends' laughter, they have not scored a hit.

Earlier today the House gave a Third Reading to the Building Societies (Joint Account Holders) Bill. I greatly welcomed that decision. I had previously introduced a Bill which I withdrew in favour of the Building Societies (Joint Account Holders) Bill. Both Bills sought to deal with the position of widows as second named joint account holders after the death of the first named joint account holder.

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I am not an expert on building societies, although judging by some of the letters that I have received from all over the country, it seems that people expect us here to be experts. I am doing my best to respond to the many questions which have been put to me. Some of the letters I received at the time of the original Bill drew attention to many other problems. Had it been possible or advisable to amend the Bill to which the House gave a Third Reading earlier today, that might have been one approach. But it was neither possible nor advisable because, had we made that Bill more complicated, it might not have gone through the other House quickly, which is clearly everyone's hope, and it might not have been possible to amend the Bill because of its Long Title. So I now introduce a Bill which deals with one of the other problems which many people have raised and with which the earlier Bill, as I said, could not deal.

Perhaps I may first mention briefly a number of the other injustices which I feel remain. In dealing with the Building Societies (Joint Account Holders) Bill, the Minister referred to some of the other injustices, as did my noble friend Lord Eatwell. It is difficult to reach the end of the line on this. Additional problems arise. The whole matter is complicated. They are worth mentioning because the Government have made a commitment to look again at the whole issue of building societies.

There are situations which were not mentioned when we debated building societies earlier. I shall give just three. One relates to where there was a joint account and where, for tax reasons, the name of one of the joint account holders was withdrawn. That left the second named joint account holder. What happened was that the building society closed the first account and opened a new one, and so, as I understand it, that person is now ineligible to benefit from the distribution of the bonus. That is unfortunate and tough.

There is another example where a wife has an account to which the husband later adds his name so that the account becomes a joint account. As a wife said in a letter to me, by convention building societies put the husband's name first. In such a situation there appears to be no entitlement to bonus.

The third example is of where an individual, wanting to set up a trust for his daughter, became a trustee and was accordingly made the first named of a joint account with his daughter. He then withdrew as a trustee, presumably because his daughter was no longer of an age when such a trust was necessary. That happened just before the qualifying period and so the entitlement was lost. I have given three examples, but I am sure that there are many others. They are signs of continuing unfairness from which people have suffered and which represent a real injustice.

The Bill is not concerned with such situations but I wanted to get them on the record so that we all know that there are many other difficulties which must be dealt with by the Government, as there is a limit to what Private Members' Bills can achieve.

The Bill deals with one specific and narrow situation. It is where an individual has switched from one type of account to another within the qualifying period. Typically in the case of the Cheltenham and Gloucester Building Society, that happened where an individual had

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a London share account and switched to a deposit account. That happened to a number of people, because the Cheltenham and Gloucester Building Society advised people who had money in the London share account that they would be better off if they switched to a deposit account.

It is good that building societies give such advice, because there have been many complaints over the years that when interest rates are varied, people who had money in one type of account were not given that advice by building societies. It would take a suspicious mind to say that there was any relationship between that advice and the subsequent announcement of the takeover of the Cheltenham and Gloucester Building Society by Lloyds Bank. It would take a suspicious mind, but the point has been put to me more than once. I do not wish to comment upon it.

The matter then went to the High Court. Perhaps I may summarise the decision, and not being a lawyer I hope that I have it right. The High Court decision was that, if someone within the qualifying two-year period had switched from one type of share account to another, that person's entitlement to a bonus was maintained. If during the two-year qualifying period someone had switched from one type of deposit account to another, that person was all right; but if within the qualifying period someone had switched from a share account to a deposit account, he was no longer entitled to a bonus.

I think that I understand the legal basis for that High Court decision, although at one level it does not seem logical. It is an extremely unfair decision because people did what they were advised to do and they are losing out for reasons which are totally obscure to all the people who have written to me and, I am sure, to many others. That point came up earlier, and perhaps I may quote what the Minister said on 15th March:

    "I can tell both noble Lords that, as part of his wider review of the 1986 Act, my honourable friend the Minister of State at the Treasury has now proposed that in future all retail investors in building societies should be shareholding members. Legislation to bring this change about will be introduced as soon as an opportunity arises. Obviously, I can go no further than that. As regards other short Bills that may be introduced by noble Lords or Members of another place, I can say only that I am sure that my right honourable and honourable friends in Her Majesty's Treasury will give them the appropriate consideration.—[Official Report, 15/3/95; col. 920.]

It is that appropriate consideration which I hope has happened. I hope that the Government can give the Bill as much positive encouragement and help as they gave the earlier Bill. I am aware that the powers given to a building society to distribute bonuses under this Bill and the earlier Bill are permissive and not mandatory. I have no knowledge of whether the Cheltenham and Gloucester/Lloyds set-up would make such payments, which they would have the power to make were the Bill to go rapidly through both Houses. I hope that they will seriously consider responding to the legislation if it becomes law by 1st August.

By all accounts, the present position is illogical and unfair. It is bad for the reputation of building societies as a whole that that situation should pertain. It is of even greater importance that the rights of individuals should

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not be prejudiced and that they should be given the bonuses to which, in justice and fairness, they are entitled. I beg to move.

Moved, That the Bill be now read a second time.—(Lord Dubs.)

7.39 p.m.

Lord Eatwell: My Lords, I am sure that we are all grateful to my noble friend Lord Dubs for introducing his Private Member's Bill so clearly and pointing out yet another of the significant anomalies which are appearing in building societies' legislation and which were revealed in our discussions on the Building Societies (Joint Account Holders) Bill which was passed earlier today to general approval.

The case which my noble friend has put forward is one which we discussed earlier today. It is an obvious case of an anomaly which will lead to inequities in the distribution of bonuses on the sale or merger of building societies. It is understandable that such anomalies are emerging; the existing legislation was not designed for the situation in which we find ourselves. Enormous changes are taking place in the building societies industry which are throwing up problems that would never have been expected when the original legislation was drafted. For that reason there is a need for fundamental review and we all await the Government's forthcoming review with interest.

In the meantime, I suggest that there is a degree of urgency in dealing with some of the inequities which are becoming evident. There is a degree of urgency, first, because we have a responsibility to minimise the inequities and obvious unfairnesses which were unwittingly contained in earlier legislation that was not designed for the current circumstances.

I suggest that there is a second reason for urgency and a reason why this anomaly, which is so clearly identified and dealt with, should not be left for the later review. It is that the Government have a degree of responsibility for the inequities because the changes in the building societies industry, which are revealing them, have been encouraged by the Government. The Government are in favour of the changes in the structure of the financial services industry, and, given that they are encouraging those changes, they are responsible for those inequities and unfairnesses. However, they are, of course, unwittingly responsible because when the legislation was drafted they could not have known that such problems would arise.

I therefore suggest that we have before us a short Bill which needs a little technical redrafting but which essentially achieves a limited goal and achieves it well. It is a Bill which deserves government support.

7.42 p.m.

Lord Henley: My Lords, perhaps I may begin by declaring that I too have no personal interest to declare. However, I give that purely as a personal interest and cannot speak for my family.

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I acknowledge the noble Lord's keen interest in the provisions of the Building Societies Act relating to conversions and takeovers. We were most grateful to the noble Lord for his support for the Bill that was introduced in another place by my honourable friend Douglas French to allow those inheriting joint accounts to benefit from a distribution provided that they have been shareholding members of the society for at least two years. That Bill has passed through all its stages in this House and was returned to another place only a few hours ago. I believe that all noble Lords present will wish it well.

Perhaps I may make one or two brief points about a number of other alleged injustices to which the noble Lord referred. As he admitted, many of them go way beyond the provisions of his Bill. He accepted that to some extent some of them were dealt with in the announcements by my honourable friends in the Treasury made late last summer and in February. I prefer to write to the noble Lord in greater detail but I believe that two of them were dealt with by the earlier Bill relating to joint account holders. I understand the point that the noble Lord made about splitting for tax purposes and the fact that the wife's open account should be dealt with by that Bill. However, I prefer to write to the noble Lord in greater detail on that point and it would be better if I did so.

We are less enthusiastic about the proposals which the noble Lord has introduced in relation to those who have switched money from share to deposit accounts. The measure, unlike the other Bill, will have no practical effect on either of the takeover or conversion proposals currently in the public domain. It might be worth commenting on the two particular takeovers. The members of the Cheltenham and Gloucester Building Society have already voted to accept the offer from Lloyds Bank. Those who switched funds between share and deposit accounts during the qualifying period and were shareholding members at the time that the takeover was first announced are not eligible to receive the cash payment. I understand that funds have not been set aside to pay for those who have switched accounts, even if the law is so changed as the noble Lord suggested. However, £25 million has been set aside to make payments to widows provided that the Building Societies (Joint Account Holders) Bill is enacted before 1st August, as we very much hope.

I turn to the proposal made by the Halifax and Leeds Permanent Building Societies to merge and convert into a bank. I believe that the societies intend that all those who were members at the time the deal was announced and remain members until conversion should benefit from a distribution of shares when the combined society turns into a bank. I very much doubt whether any shareholders at the time of the announcement will have since switched funds into a deposit account and so lost their membership rights.

The House will be aware that my honourable friend the Minister of State at the Treasury announced in February the outcome of the Government's review of the Building Societies Act. As well as giving societies enhanced powers, the Government intend to implement a 15 point accountability package which will improve

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the awareness among members of their rights as shareholders in a mutual society and make it easier for those who want to become more actively involved in running their society. One of the measures announced by my honourable friend will remove the distinction between shareholders and retail depositors in a building society, replacing them with a single class of investing member.

It would be contrary to the greater emphasis that we are placing on the importance of membership to extend the benefits which may be enjoyed by those who have switched out of share accounts and so do not have a continuous record of membership of the society. However, as I said, the distinction between depositors and shareholders is to be abolished when the Government introduce new building society legislation.

I understand the noble Lord's desire to enable those who have switched from share to deposit accounts to benefit when their society converts or is taken over. However, the proposed amendment to the law would not appear to benefit depositors in either of the two mergers to which I have referred. As the Government are to address the distinction between shareholders and depositors at a suitable opportunity through new primary legislation, I do not believe that a piecemeal change of the kind proposed by the noble Lord is necessary. I therefore cannot offer Government support for the Bill and I ask the noble Lord to consider whether he believes that it is worth pursuing the Bill in this House.

7.47 p.m.

Lord Dubs: My Lords, the Minister has put me in some difficulty and I am thinking my way through it as rapidly as I can. I listened most carefully to everything that he said. The Government's main argument appears to be that the Bill, even if it became law by 1st August, would not influence the distribution of bonuses to people who switched from a share account to a deposit account in the case of the Cheltenham and Gloucester takeover nor in the case of the other takeover. However, provided that we give the building societies concerned the power to make such a distribution they would be able to do so, notwithstanding the fact that the vote on the approval has taken place. It may well be that the directors of the Cheltenham and Gloucester Building Society and Lloyds Bank would not wish to make any further distribution, but if the Bill became law they would be able to do so.

Given that originally they had intended to do so and were prevented from doing so by a High Court decision, surely it is appropriate for Parliament to say, "Fine, we note the High Court decision. We believe that the decision was good in law under the existing legislation. We therefore propose to change the legislation in order that the situation becomes fair".

At no point did the noble Lord say that the way in which people who had switched accounts were being denied a bonus was not all right. After all, any individual who had a deposit account throughout the period would receive the benefit of a bonus. It is only the people who move from one type of account to another who do not receive the benefit of a bonus. By passing this Bill we will be putting a little pressure on

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the respective building societies and the bank in order that they could reconsider whether they would not be better off and whether it would not be fairer if they made such a bonus distribution.

Notwithstanding the Government's reluctance or lack of enthusiasm, I am not persuaded that the argument stands up, unless the Minister is speaking with the full authority of the building societies concerned. I doubt whether the Government are speaking on their behalf. I sent my draft Bill to the chief executive of the Cheltenham and Gloucester Building Society and I received no response from him. I did not ask for a comment but he did not suggest to me that the Bill is now too late or inappropriate. Therefore, I am rather surprised that the Minister makes that point.

Furthermore, if the Government intend to change the law relating to building societies and if the proposals of my Bill—although it may be that they are not in the form of wording which may appeal to the Government—give effect to that intention, then there can be no difficulty with allowing my Bill to proceed with Government help. That would make the subsequent legislation simpler because some of the provisions would have been dealt with. There is nothing wrong with piecemeal legislation if it does not detract from the logic of dealing with the situation which the passage of time has made inappropriate.

The Government's arguments are not persuasive. I believe that it is right to proceed with the Bill and I hope that the House will give it a Second Reading.

On Question, Bill read a second time and committed to a Committee of the Whole House.

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