Norwich & Peterborough Building Society are challenging in court an Ombudsman ruling that they must pay the same rate on their Tessa as on their ISA. The period involved is April 1999 to September 2000.

The Building Society says they are different products and anyway their rates were better than most of their competitors. However, if the court finds against them, Norwich & Peterborough will pay out to all their qualifying members, at a total cost of some £1.3m.

So people who had Norwich & Peterborough Tessa accounts need do nothing.

The Ombudsman has ruled that the Skipton Building Society could pay higher rates on its ISA than on its TESSA because the ISA has more stringent conditions. Which seems reasonable.

It is believed that the Ombudsman has made preliminary rulings in favour of the Nationwide but against the Britannia and the Norwich & Peterborough.

In March 2001 the ombudsman reported - sadly without naming names - that

• TESSA complaints have been received about 12 banks. Seven have agreed to settle with their customers. The ombudsman is still talking to two, and test cases are being investigated concerning the other three
   
• TESSA complaints have been received about 17 building societies, almost all of them concerning 5 societies. None of the five has settled so they are all the subject of test cases. Four have reached the preliminary conclusion stage and each has thus far gone against the society concerned, but a final ombudsman decision has not yet been issued.

The ombudsman added that dozens of new cases arrive each week, mainly concerning building societies. The ombudsman has subsequently launched cases against the Nationwide, Skipton and Britannia Building Societies. Their cash ISAs paid a better rate than the TESSAs but they refused to compensate TESSA customers.

This seems odd, as they are supposedly owned by their members.

Abbey National have replied to at least one complainant saying they consider their rate "fair". They claim their ISA account is not comparable. If they say this to you, ask for a deadlock letter for the ombudsman.

A reader writes:

According to Abbey National the fee of transferring Tessa accounts was removed on 8/8/00 and Tessa accounts are not obsolete and have to be kept for the 5 years to be eligible for gross interest which is at present 5.2%.

However, the Ombudsman has adjudged them to be obsolete.

A reader reports:

Sent your letter. Reply states interest rates were fair as same as Variable rate ISA. Fair enough.

Re notice period - say directive only came from Ombudsman 29th September 2000. Penalties removed that date but between 2nd Nov. 99 and 28th Sept. '00, I could only have withdrawn with 90 days penalty. They do not deny they did not inform me of this change but enclosed terms and conditions dated July 2000 which state: "A change which abolishes a charge or reduces the amount of an existing charge may be introduced with immediate effect and without notice". They concluded that no compensation is due.

Their problem seems to me to be that the directive was retrospective to 5 May 1999. Therefore for the period before 29/9/2000 they have to compare the interest with another account which had the same notice terms then. I don't know if their ISA did. Furthermore, the directive states clearly that people had to be told that penalties were withdrawn before the entitlement to compensation would cease. In other words, the society was entitled not to tell customers within its rules, but that doesn't seem to enable it to creep under the wire of the directive.

Our reader will explain this to them and request a deadlock letter for the ombudsman.

One reader reports:

They initially refused to pay compensation on the basis that: a) Tessas and ISAs are 'different in many ways'. b) They have always made it clear that I could transfer out of this account. The £30 transfer fee 'was an administrative fee and not a penalty'. c) They have kept me informed of all rate changes.

Northern Rock's comment about the transfer fee is pure hogwash. Our reader then demanded a deadlock letter so that he could complain to the Ombudsman. Northern Rock then agreed to pay compensation as 'a gesture of goodwill and in keeping with the spirit of the recent Ombudsman's guidance'.

A reader reports:

I and a colleague have both had compensation from WBBS for the difference between TESSA and ISA interest rates, although it took two complaint letters in each case. The first letter was fobbed off despite quoting the ombudsman's guidance.