Building Societies (Joint Account Holders) (Hansard, 29 April 1998)

§ Mr. John Healey (Wentworth)

I beg to move, That leave be given to bring in a Bill to secure equal rights for second-named and subsequent-named account holders of building society joint accounts in respect of distribution of assets on the takeover or conversion of a building society. I do so with the support of many hon. Members whose constituents have consulted them over problems caused by the legislation as it stands.

My Bill aims to amend the Building Societies Act 1986 to ensure that people who have a joint account but whose name is not the first on the policy are treated fairly in any future cash or share windfall when their building society converts to a plc. My Bill does not attempt to change the qualifying period for such bonus payouts. It does not alter voting rights, and it is not intended to be retrospective.

This afternoon is the first shot in a campaign to convince Ministers and the House of the need for change. There are 71 continuing mutual building societies in the United Kingdom, and they have around 16 million customers. Those societies argue that they offer their members higher saving rates and lower mortgage rates, and that mutual societies can take a long-term view on business because they are not driven by short-term shareholder concerns. Some of those 71 will, however, convert. Birmingham Midshires wants to. The Nationwide will vote again shortly on whether to do so.

I do not want people with joint accounts in such societies to be caught in the same trap as a divorced mother in my constituency, Mrs. Whittaker. Her ex-husband left six years ago. Since then, he has not paid a penny towards supporting their kids or paying the joint mortgage.

The Halifax would not allow Mrs. Whittaker to remove her ex-husband's name from the mortgage—although it was happy for her to take on alone the mortgage arrears and repayments. Last year, when the Halifax became a bank, Mrs. Whittaker's ex-husband received all the shares, which he cashed in, thereby pocketing £1,750. Mrs. Whittaker received no share of the windfall, although Halifax's chairman told me that the board thinks that its scheme is "fair and equitable". The Halifax has just reported first-year profits of more than £1 billion.

It would be wrong to point a finger only at the Halifax, as I have received hundreds of letters from people across the country about other organisations—such as Abbey Life, Northern Rock, Alliance and Leicester, the Woolwich, and others—which have acted in the same manner. Moreover, it is not difficult to understand why those companies have acted as they have. By restricting windfall shares to voting members—who are defined as the only or first-named person on an account—the companies increase the potential amount gained by those voting if the takeover or conversion proceeds.

Former building societies argue that they cannot extend bonus payouts beyond those who are voting members. However, last year, my hon. Friend the Economic Secretary to the Treasury made it clear in a letter to the National Association of Citizens Advice Bureaux that that legal excuse was wrong. She wrote:

The Act does not compel a society which plans to convert to focus its distribution scheme only on voting members, nor does it prevent a society from making arrangements to take into account 342 savers who for any reason … were not first-named on the account. The societies who recently converted could, therefore, have devised different schemes at the start of the process". The Building Societies Association agrees. In other words, it is a matter not of can't but won't.

Nothing in current legislation prevents building societies from devising schemes that treat their account holders more fairly. However, nothing requires them to do so. My Bill aims to create such a requirement.

The Government are yet to be convinced of the need to create such a requirement. Their reluctance to accept the need for action stands in stark contrast to the rightly tough stance that they have adopted on the mis-selling of private pensions. On the building society issue, Ministers argue that trust law covers the problem, and that the courts offer the remedy. Court action has never been an option for Miss Whittaker.

Last week, in a letter to me, the National Association of Citizens Advice Bureaux stated that it was

unrealistic to suggest that people who did not qualify for shares could pursue another named account holder in the courts. Many CAB clients"— such as Mrs. Whittaker—

are on low incomes and could not afford to use a solicitor to pursue a case. A small claim might conceivably be successful, but it would be extremely difficult to enforce any judgment. The Lord Chancellor has readily acknowledged the difficulties of enforcing small claims judgments. My aim, therefore, is to create a general framework to ensure a fairer distribution of windfall benefits among joint account holders when their building society becomes a bank.

We require also an independent complaints mechanism to deal with individual cases that are grossly unfair or unjust. My Bill therefore attempts also to extend the legal competence of the building societies ombudsman. Currently, the ombudsman may investigate complaints about the operation or termination of accounts, but he cannot investigate the terms of a conversion; incorrect, misleading or incomplete advice on action to preserve benefits in a conversion; or the failure to advise on the effect of name order on a joint account. It is high time he could, especially as almost half the initial complaints that he received last year concerned conversions.

For the sake of fairness for the millions of joint account holders still with mutual building societies, I hope that the House will grant me leave to bring in the Bill.