£5,000 windfalls for building society members

Building society windfalls are back. Members of Barnsley Building Society will receive up to £5,000 after the mutual recovered money tied up in failed Icelandic banks.

Barnsley was forced to merge with Yorkshire Building Society after £10m it had deposited with two Icelandic banks, Kaupthing Singer & Friedlander and Heritable Bank, was feared lost.

But at the time of the merger it promised that any money it recovered from the banks' administrators would be returned to its savers and borrowers. It has now said that £8.8m has been recovered after a four-year process.

Barnsley's savers will receive 3.31pc of their total savings balance held with the society on October 21 2008, subject to a minimum of £25 and a maximum of £5,000. Borrowers will get a flat payment of £250, although all payments will be taxed at source. In all, about 28,000 account holders will benefit.

To qualify for the windfalls, savers and borrowers are required to have maintained continuous membership between October 21 2008 and October 21 this year with one or more of the brands in the Yorkshire Group, which also includes Chelsea and Norwich & Peterborough building societies and Egg.

Eligible members have already started to receive their payments and the distribution process should be completed by December 21, Barnsley said.

"The Yorkshire made a commitment at the time of the merger to pursue recovery of these investments and, if successful, consider an ex-gratia payment from the proceeds to eligible Barnsley Building Society members," it said. "The Yorkshire is confident that £8.8m is the largest possible amount it could reasonably expect to be recovered from the investments."

The Barnsley payments are unlikely to herald a return to the "carpetbagging" craze of the 1990s, however.

Carpetbaggers speculated that building societies might convert to banks or be taken over, releasing excess reserves as windfalls to members. By putting a small sum, perhaps as little as £100, in a savings account, these investors gained membership rights, allowing them to share in any windfall.

Some carpetbaggers used their membership rights to try to force societies to convert by putting forward resolutions at their general meetings.

Following the first demutualisation, of Abbey National, several building societies, including Halifax and Northern Rock, became banks, although none survived the credit crisis. Nationwide, the largest society, has fought off attempts by some members to convert it to a bank.

The term carpetbagger comes from the American Civil War, when people from the north packed all their belongings into carpetbags and headed south to lay claim to land that was not theirs. It was first applied to those seeking building society windfalls in early 1996, according to the Building Societies Association.

• For more information visit www.barnsley-bs.co.uk/documents/Icelandic_Payments_FAQs.pdf or www.barnsley-bs.co.uk/documents/BBM5848A-Rules-for-Icelandics-Payment-24102012.pdf

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