Capital One sells savers to Skipton
Capital One has announced it is selling its savings business to Skipton Building Society.
The sale is likely to go through around the 27 July, when Capital One savers will move over to Skipton’s new brand, Castle Money. Customers with the American-owned firm, which has had a presence in the UK since 1996, were informed of the change by letter last week. The sale is still subject to court approval and it is not yet known how many people are affected or how much money is involved in the sale.
Brian Cole, interim managing director of Capital One, says it is more efficient for the firm to fund its lending through its US parent company, rather than through savers’ deposits.
”We value the relationship we have had with our savings customers and have worked hard to ensure a smooth transition,” he adds.
Skipton merged with Scarborough Building Society last year, and is currently the UK's fifth largest society with around 860,000 members.
However, the latest move has prompted concerns that Skipton and Capital One savers could fall foul of compensation limits. As it currently stands, individuals are covered up to £50,000 per bank under the Financial Services Compensation Scheme (FSCS).
This means that banks or building societies that share the same Financial Services Authority (FSA) licence are considered as one bank – savers with money in two institutions sharing a licence are, therefore, only protected up to £50,000 regardless of the number of accounts they hold.
Following the merger with Skipton, Scarborough Building Society savers have benefited from double protection under the compensation scheme; this is down to new rules introduced last December, which allow merging building societies to retain their separate licenses until December 2010.
However, a spokeswoman for Skipton says it is unlikely that Capital One savers will receive the same treatment. This means that Capital One customers need to check if they have existing accounts with Skipton, and ensure that their accumulated savings pot does not exceed £50,000.
To help people avoid losing their protection, Skipton is allowing fixed-rate savers a 60-day amnesty to move their money elsewhere. However, Vera Cottrell, principal policy adviser at Which?, says the compensation scheme needs to be reviewed in light of mergers and savings book sales.
“This is just another example of the inadequacy of the current compensation scheme,” she explains. “The FSA needs to address the shortcomings with the FSCS to ensure that consumer protection isn’t eroded when situations like this arise.”
Kevin Mountford, head of banking at moneysupermarket.com, also urges Capital One savers to keep a close eye on the details of the deal and make sure they move their money if their balance exceeds £50,000.
But he adds: “This should generally have a positive outcome for existing Capital One customers as Skipton offers a wider range of savings products with competitive rates."
It is not yet clear whether the Castle Money brand will just exist for former Capital One customers or if it will open up to new customers and launch its own product range.
Tracy Fletcher, spokeswoman for Skipton, says: "The brand was established to acquire Capital One customers and we are currently considering our options in terms of growing the brand into the future."
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.