Dot ComUnity Credit Union - ISA

Ed-1

mt77 wrote: »

I find it unbelievable that FSCS have lied to me this morning. What you are saying makes logical sense. It would also be cheaper for me since I can deposit the cheque in my local current account and then make electronic fast payments to my ISA account (depending on the limit I can make each day - I think there is some £10,000 limit per day with Natwest).

You'd need to have an arrangement/agreement/authorisation with/from the new ISA provider that they would accept a transfer from your current account to your ISA as a defaulted subscription (i.e. a formal ISA transfer) that does not count towards the ISA allowance. Remember you can't do this in multiple payments, it has to be one single subscription, and you can't do it yourself otherwise their systems would automatically treat the transfers into the ISA as new money subject to the 15/16 allowance.

MARTYM8`

gwapenut wrote: »

There's an additional consideration, yet to be (dis)proven, that some ISA providers may willingly accept an FSCS cheque for too much, but not a personal cheque for the correct amount.

We've already seen evidence of the former (colsten, pafpcg), but nothing yet to support the latter (my own situation).

Tread with care ... I'm committed to this path having banked the cheque... you're not!

To bank the cheque or not to bank the cheque – that seems to be the question!

The FSCS may say one thing – but providers may want you to do something different.

I am tempted just to go to HSBC tomorrow and pay the cheque into my First Direct account.

gwapenut

It was an easy decision for me to bank it - I didn't want the loss of interest while I dithered / argued with banks, plus it's not the end of the world if I do lose my ISA status because I've been in two minds about whether to draw down some of my ISAs to pay off a little of the mortgage, now that ISA rates are becoming slightly unprofitable.

For those who have not yet utilised their current accounts to the max, it's also more profitable to let the money rest in those for a few months before rushing to put into a 1.6% ISA. Even for a higher rate tax payer.

So for me, depositing the cheque was a no brainer. For others, potential loss of some ISA wrapper may be a wrench.

Those who do bank the cheque - take a photo of it and the FSCS letter first. May well sway any banks who are anxious about not having a proper FSCS cheque.

Ed-1

gwapenut wrote: »

It was an easy decision for me to bank it - I didn't want the loss of interest while I dithered / argued with banks, plus it's not the end of the world if I do lose my ISA status because I've been in two minds about whether to draw down some of my ISAs to pay off a little of the mortgage, now that ISA rates are becoming slightly unprofitable.

For those who have not yet utilised their current accounts to the max, it's also more profitable to let the money rest in those for a few months before rushing to put into a 1.6% ISA. Even for a higher rate tax payer.

So for me, depositing the cheque was a no brainer. For others, potential loss of some ISA wrapper may be a wrench.

Those who do bank the cheque - take a photo of it and the FSCS letter first. May well sway any banks who are anxious about not having a proper FSCS cheque.

The ISA regulations / HMRC guidance are one thing but the reality in practice is what really matters:

• Regulations: The investor must give details of the amount held in defaulted cash ISA accounts immediately before the default occurred (including accrued interest) together with the amount and date of first subscription in the current tax year (the latter not being relevant in the case of EBCU as the restrictions prevented us from depositing into an ISA this tax year - or in theory they did but I recall Mike Grimsdale suggesting a workaround to one member where DCU would accept a deposit into the Basic Share Account and they would treat it as an ISA subscription so that the member could use the remainder of their ISA allowance or something to that effect in which case things get very hairy).
  In practice: The banks need to be convinced that the information provided is true and accurate and so require evidence in the form of (for example) the ISA statement showing the final balance, a FSCS letter etc.
• Regulations: A defaulted cash ISA subscription can be made whether or not any compensation is paid to the investor.
  In practice: The new ISA provider needs to be convinced that the default occurred and needs to see evidence of the above. How can they be certain that the investor has not made multiple defaulted cash ISA subscriptions with different providers if they use their own funds for this purpose? They can't and so the only concrete proof that they are likely to accept as evidence in practice (even though you can use your own funds in theory) is using a FSCS cheque to make the defaulted subscription.
• Regulations: The defaulted cash account subscription must be made in a single payment.
  In practice: Again, this influences the above as you cannot bank the cheque in a non-ISA and then do multiple transfers into an ISA as they would not count as a defaulted ISA subscription but as new funds.
• Regulations: In a normal ISA transfer, the industry best practice guidance suggests ISA providers should backdate interest to the date of the cheque received. There is no such guidance for defaulted subscriptions.
  In practice: Defaulted cash ISA subscriptions are in practice, if not formally, ISA transfers, so whether interest gets backdated to the date of the funds provided for the defaulted subscription will depend on the provider and their internal processes (i.e. whether they a) would usually backdate interest; and b) process the defaulted subscription as an ISA transfer in the standard way).
• Regulations: There is no requirement for ISA managers to accept defaulted cash account subscriptions.
  In practice: The ISA provider needs to be willing to accept the subscription.

colsten

Ed-1 wrote: »

I recall Mike Grimsdale suggesting a workaround to one member where DCU would accept a deposit into the Basic Share Account and they would treat it as an ISA subscription so that the member could use the remainder of their ISA allowance or something to that effect in which case things get very hairy)

I would mention Mike Grimsdale only under "breaches of regulations" as in my experience he agreed to absolutely anything and everything as long as you deposited some money into DCU.

Other than that, your summary of Regulations vs Practice is excellent.

Ed-1

gwapenut wrote: »

Yes, positive. Mike Grimsdale said at the time that they couldn't amend the deposit date, but would adjust calculations manually on maturity.

You're quite right. I've now found the dates of my ISA cheques and re-calculated my interest.

The interest credited to the account when I transferred from the 1 year ISA to the 5 year ISA had interest correctly backdated.

However I also made one later transfer in for which interest was received on the date of default and this did not have interest backdated.

So DCU must have kept a record of the date of cheques intending to do this adjustment at the point of crediting the interest.

EDIT: On checking the interest payment in detail, interest has been paid up to and including 13th May but excludes the default date of 14th May! Surely 14th May should have been included - the FSCS cheques were dated 15th May so even if the ISA provider backdates interest to the date of the cheque with these 'defaulted cash ISA subscriptions' in a normal ISA transfer fashion, there would still be 1 day's missing interest.

It seems DCU's systems would not allow them to adjust the interest at the point of crediting the cheques (either that or they chose not to do it that way), unlike for instance Santander who I know do this and presumably so do all the major institutions.

masonic

I bet you are all glad the FSCS has "simplified" this process by scrapping the ISA certificates that they used to issue.

I can't really blame the banks for their cautiousness over this. How are they supposed to verify a genuine account statement from a failed credit union? I do hope the FSCS will get the appropriate feedback about how difficult they have made this process since they've introduced these changes.

Archi_Bald

masonic wrote: »

How are they supposed to verify a genuine account statement from a failed credit union?

very simple. They follow the procedures of the ISA Re-instatement guide and check the companies in default on the FSCS website. Then they take the FSCS cheque and closing ISA statement and put the money into an ISA, as an ISA transfer (I am ignoring for now that FSCS should not have put the non-ISA fivers from the basic share account on the same cheque as the ISA money, and that the EBCU Administrators seem to have employed clueless folk to calculate the interest due).

I agree it could be more straight forward if the FSCS spelt out in even simpler terms exactly what the ISA providers are meant to do. Unfortunately, it seems the ISA providers don't seem to remember they have HMRC guidelines that they are supposed to follow.

masonic wrote: »

I do hope the FSCS will get the appropriate feedback about how difficult they have made this process since they've introduced these changes.

FSCS should definitely be made aware of the ridiculous struggle the ISA providers are putting up in this case. I would suggest you don't waste your time with FSCS operatives but instead go straight to the top. Contact email addresses are on our Google Group.

rebecca1

I have received my cheque but will be calling the FSCS tomorrow to see if paying it into my personal account first stops me from re-investing into another ISA. This is because of the £5.00 extra the cheque states over the statement amount.


If I send my cheque to another ISA provider with the extra £5.00 in it will they accept it?


I believe that AlRayan Bank will accept the cheque but needed the statement also. I am sure when they see they don't agree it will cause problems. There ISA forms are also not straight forward to complete online.. I might stick to a well known and bigger financial institutions.


Rebecca

gwapenut

I've just received a professional response from the Leeds - to my surprise really, because they are dealing with such a large backlog of ISA transfers that I thought they may not have time to give this complex situation the attention it needs.

They fully understand the questions and cannot give the final go ahead until they receive clarification from the Inland Revenue, but in the meantime they have stated that, if it were possible, they:-
a. Would accept a personal cheque
b. Would require the original FSCS letter (and would keep it for their audit trail)

Well done Leeds!