Money talk: Mutual but not democratic

THE BATTLE to force the remaining building societies to convert to banks and issue their members with free share windfalls is turning distinctly dirty.

Chelsea Building Society, based these days in Cheltenham, has a reputation for taking a tough line with carpetbaggers. It allows new members to open accounts with pounds 1,000 but pays them a derisory 1.65 per cent gross interest. Now it has closed the accounts of 60 members unwise enough to support an attempt by Michael Hardern, the leader of the demutualisation campaign, to get himself elected to the Chelsea Board.

Richard Hornbrook, the society's general manager and secretary, has closed accounts under Rule 8 (10) of the society's rule book, a catch- all clause which permits the society to close accounts without giving a specific reason. But Mr Hornbrook had earlier written to the members pointing out that he was aware they had given their support to Mr Hardern.

To rub things in, he also pointed out that Mr Hardern had failed to lodge his application to join the board before the deadline of 31 December and anyway had failed to secure the necessary 50 endorsements from members of at least two years' standing and with a minimum of pounds 100 in their accounts. He will therefore not be a candidate and no resolution to try to convert the society will be put to the meeting.

The accounts will be closed before the annual meeting on 20 April, the earliest date on which current members could qualify for a windfall. But, Mr Hornbrook's letter haughtily concludes: "As has already been pointed out to you the board has an absolute discretion to close your account under Rule 8 (10) and is not required to give reasons for its decision. Furthermore this decision is irrevocable.

"You have been given proper notice of the closure as required by the Rule and you will be sent the balance of your account, together with interest accrued up to the point of closure. I cannot see therefore that you will suffer any loss as a result of the decision to close the account."

Some members whose accounts have been closed in this way have complained to the Building Societies Ombudsman, but no date has been set for a ruling. Meanwhile, the lesson will not be lost on the Chelsea's remaining 360,000 members. You can hope to profit from demutualisation, but make one move to bring it about and you will be summarily expelled. This may be a mutual society but a democracy it is not .

Ironically, of course, there is no commercial pressure for the Chelsea to convert to a bank, and it could be a disaster if it did. It does not need a capital injection, and with 32 branches and just pounds 3bn of funds it is too small to survive alone as a bank. It may even be too small to be worth a predatory bidder trying to snap it up by going public with an offer, in the hope of forcing the board to put the question to a vote of members.

That is what the board must earnestly hope. Meanwhile, however, they are taking no prisoners.