Yahoo Finance Building societies to pay tens of millions to trust scandal victims
Three major building societies have agreed to pay millions to customers after introducing them to tax schemes that led many to lose their life savings.
Leeds, Newcastle and Nottingham building societies have today announced they will reimburse over 2,000 customers who placed money into now-failed trusts after being introduced to them while on their branch premises.
The customers were introduced to a third-party estate management company called the Family Trust Corporation between 2005 and 2018. The firm encouraged savers to put their money in trusts to save on inheritance tax and care home fees. Building societies earned up to 20pc commission of product fees in return.
But in 2018, the Family Trust Corporation ceased trading and another third party called the Philips Trust Corporation took over. Customers’ money was pulled from sound investments and put into new vehicles that loaned money to, among other entities, a sausage shop and a scaffolding firm – all of which later defaulted. Philips Trust went bust in April 2022.
Leeds chief executive Richard Fearon said that the consequences of the failed investments were “serious”.
Around a quarter of the £44m lost will come from Leeds, which made a £181m profit last year and holds capital and reserves of over £1bn.
Mr Fearon said: “It became clear this year that investments were defaulting. It looked like the defaults were going to be very serious indeed in terms of the shortfalls.
“We think this is a strong financial offer that the three of us are making. There is no regulatory or legal obligation for us to do this. It is voluntary.”
Mary Ledgard, mother of John and David Ledgard, was introduced to Family Trust’s umbrella firm, Estate Planning Group, by a clerk at her Leeds Building Society branch in 2014.
Ms Ledgard died in May 2021. By November of that year, her house had sold for £180,000. Her two sons have – until now – not seen any of this money after Philips Trust admitted that sale proceeds were transferred to a different customer.
Mr Fearon today confirmed that the brothers will now be compensated the full £180,000 by Leeds.
David Compston, a close friend of the family who has been representing the brothers, said: “It’s unbelievable. His long-term partner has been on dialysis at home. She’s been working full-time, but this means she can now go down to two days a week. It’s life changing.”
A salesman working for Philips Trust blew the whistle on the operation in October 2020, telling the Financial Conduct Authority (FCA) it was “in effect a ponzi scheme” in a letter seen by the Yorkshire Post – the first paper to expose the scandal.
The FCA launched a review into the allegations, but no actions were taken because the firm was never authorised and therefore fell outside its remit. Wills and trusts, which all come under ‘estate planning’, are not regulated by the City watchdog.
Since then, the FCA has said it will not investigate all 10 building societies involved and that none of its principles had been breached.
This week, an Early Day Motion in Parliament, backed by MPs, accused the FCA of “fail[ing] to act against the building societies despite many FCA Principles for Business being breached”.
MP Bob Blackman, co-chair of the all-party parliamentary group for investment fraud said: “The FCA had failed to take swift and decisive corrective action, despite a mountain of evidence.
“Building societies were getting commissions. They ignored the attitude to risk of their customers, and that’s a flagrant breach of what they should be doing.”
He has previously called on the building societies to compensate victims through his work as the co-chair of the all-party parliamentary group for investment fraud.
“Elderly and vulnerable victims just haven’t been treated correctly, it’s as simple as that,” he said.
Emma Lewell-Buck, South Shields MP and fellow APPG member, said it was “outrageous” that building societies did not provide “adequate due diligence” before recommending unregulated third parties, without warning customers of the risks.
Kathleen Birtley, 83, who was introduced to Family Trust through Newcastle Building Society, lost £105,000 which she had intended to pass on to her disabled son.
Her husband passed away in 2014 from motor neuron disease. Her son-in-law, Gordon Crosthwaite, has been actively campaigning on her and other victims’ behalf.
Mr Crosthwaite said: “It’s as good a result as we could have hoped for. But no compensation will ever remedy the kind of distress caused over the past few years. But we can relax now.”
“We appreciate building societies didn’t have a relationship with Philips Trust. But they started this.”
Sue Hayes, Nottingham Building Society’s chief executive, said: “Members impacted by the actions and administration of Philips Trust have experienced a terrible chain of events and we hope today’s announcement provides some comfort”.
Andrew Haigh, Newcastle Building Society’s boss, added that it has been “extremely distressing to hear the customer stories and the impact on their lives”.
All three building societies are supporting a police investigation into the collapse of Philips Trust.
Cambridge, Saffron, Marsden, Hanley Economic, Vernon, Melton Mowbray, and Dudley building societies, were also embroiled in the scandal, according to solicitor Claire Springle. But none have yet announced any formal voluntary payments.
Robin Feith, of the Building Society Association, called the series of events “a scandal” and said he hopes “the generous offer” from three of its members will help people in a meaningful way.
He added: “It’s important that those responsible are thoroughly investigated by the police. Our concern now is that some victims may have become customers of Family Trust through other introducers [i.e. not building societies], and through direct marketing – so will not be supported by today’s announcement.”
