By Sarah Toyne BBC News Online personal finance reporter

Thousands of mortgage customers with the Cheltenham & Gloucester could be in line for compensation payments following a ruling by the financial ombudsman, BBC News Online has learned.

We will take the remainder of this week to review the adjudication and determine our response

C&G

The ruling concerns the practice of offering new customers a lower variable interest rate than that applied to loans held by existing customers - something the ombudsman has said is unfair.

Halifax, Nationwide and HSBC have already lost similar cases and been forced to compensate customers.

One C&G customer complained to the ombudsman over the "two-tiered" variable rates which the bank - part of Lloyds TSB - introduced on 1 May 2001.

C&G refused to confirm the number of people who were affected by its dual rate policy, but mortgage experts said it could be as many as 500,000.

However, only a fraction of those affected might be able to claim compensation because the scope of the ombudsman's decision could be limited.

'No need for action'

In a statement, C&G said the ombudsman had determined there were "certain circumstances in which we should not have applied our Standard Variable Mortgage Rate when we had also introduced the C&G Variable Rate".

It said it would take the remainder of the week to review the ombudsman's eight-page adjudication before determining its response.

"For the moment there is no need for C&G customers to take any action," said the mortgage lender.

Abbey National is also awaiting a ruling over dual rates from the ombudsman. This is expected within weeks.

Appeals lost

C&G must now decide whether it will appeal against the adjudication. Any appeal must be made within one month.

If it does so, the ombudsman will then be called upon to make its final decision.

Both Nationwide and Halifax lost their appeals against the ombudsman, but they have treated the issue of compensation very differently.

Nationwide is now in the process of spending �90m backdating payments to more than 400,000 customers, who held products linked to a higher variable rate between March 2001 and April 2002.

Complaints procedure

Approach the company If dissatisfied with its response, go to the Financial Ombudsman (see internet link)

Halifax, however, has refused to compensate all customers and will only pay out to those who lodged complaints before 1 March 2002.

It has so far paid out �8m to 30,000 customers who had capped-rate mortgages and lodged a complaint before 1 February 2002.

It is offering a token �100 payment to customers who complained between 1 February 2002 and 1 March 2002.

Anyone who failed to lodge a complaint with the bank before then, and who is unhappy with the Halifax's refusal to offer universal compensation, must go to the Financial Ombudsman to seek redress.