Personal Finance: Mutuality sacrificed

THE long-standing members of the Cheltenham & Gloucester Building Society look as if they are going to be given a real lesson in mutuality, as they scramble to see the society shed its mutual status and join Lloyds Bank.

At the heart of all this is the pounds 1.8m the bank is prepared to pay to take over the sleek society.

It needs a massive turn out of members to deliver an overwhelming 'yes' vote to get the deal through. The High Court last week said that the 'two-year rule' barred payments to all.

The vice chancellor, Sir Donald Nicholls, pointed out that this blights the chances of members - those savers in share accounts and borrowers who have a vote when it comes to sharing out the cash. But there's nothing to stop payments to non-members - savers in deposit accounts, staff and pensioners - from being included in a shareout of the lolly. After all, it cannot be bribery to vote as they do not have a vote.

It now looks likely that the way out of this impasse is for the troublesome 27 per cent of members who have joined in the two years before the deal was announced to have their share accounts transferred into deposit accounts and sacrifice votes to gain pounds.

Then the members will have to vote through a deal that is generous to all - members and non-members alike for their mutual benefit. And suddenly mutuality has been stood on its head.

THE proposals from the Office of Fair Trading to give annual percentage rates (APRs) an overhaul has not met with universal rejoicing.

The Consumers' Association believes the plan to separate the running interest from the fixed charges will muddy the waters. It seems to think that consumers need a single number even if that involves massive distortions.

The wonderfully reasonable director-general of Fair Trading, Sir Bryan Carsberg, wants to tell it like it is - plain and simple, but two numbers where two are necessary to tell the whole tale.

The essence of the APR was to show the power of compound interest to turn a tiny monthly charge on a credit card into a high annual one, and show how this can be compared with rates on offer with current accounts, personal loans and HP.

But when the formula has to take account of annual fees for credit cards, distortions start to creep in. For a start you need to assume a level of spending. Somehow the card companies have managed to make pounds 1,000 the official amount, even though the average amount outstanding on cards is less than half that. This halves the impact of a fixed fee.

And anyway that fee is a payment for the option of being able to use the card for borrowing. When deciding how to pay for the hi-fi, the card fee will have already been paid - and should not figure in the decision of whether to make an incremental increase in borrowing.

An OFT survey showed that 53 per cent already believed that the APR tells you how much interest you will pay. The idea that a portion of it is made up of fixed charges has got lost.

What is needed is a simple form of annual rate to compare running interest rates and strict rules that will force lenders to show their charges loud, clear and bold.

ANOTHER survey by the OFT shows how the lenders are persuading people to take special mortgages tied up with endowments, buildings and contents insurance.

A substantial proportion of borrowers with a packaged mortgage were dissatisfied and had tried to change lenders. But they found it much more difficult than those with free-standing mortgages.

The OFT is calling for better information about the components of these deals. Consumers are already demanding unadorned loans and are willing to pay, say, an extra 0.25 per cent on a fixed rate - to buy their freedom.