A CLASS action worth at least �18m will next week be lodged against the Norwich & Peterborough Building Society by savers who claim they were mis-sold investment products.

The building society had hoped to avoid a large-scale payout after the Financial Services Compensation Scheme (FSCS) announced it was prepared to reimburse eligible investors in the collapsed Keydata fund.

But about 400 customers are set to snub this offer and instead pursue the N&P through the Financial Services Ombudsman (FSO).

It is the latest blow to the building society which is currently under investigation by the Financial Services Authority. In recent weeks its credit rating has been down-graded and it is believed to be a takeover target for a number of rivals.

Gareth Fatchett, partner at Regulatory Legal, which represents the group of claimants, said: “There is a lot of ill-feeling held by those whose savings have been caught up in this collapse as the result of bad advice by the N&P.

“There are also a number of people who invested above the FSCS compensation limit.

“They have looked at the FSCS route but instead decided that it would be more appropriate to pursue the N&P as they believe it is the N&P which is at fault.”

If the latest claim is successful, the building society, which has 500,000 members, would be forced to foot the bill from its reserves.

The FSCS, which is funded by contributions from the financial services industry, had said it would consider compensation claims on the basis that Keydata brochures were misleading.

About 3,100 N&P customers are thought to have savings caught up in Keydata, which went into administration in 2009 and is now being investigated by the Serious Fraud Office. Most invested between �5,000 and �100,000. The FSCS does not give compensation beyond �48,000.

A large number of N&P customers say they did not receive a brochure and instead relied on the advice of the society’s financial advisers, meaning they may not be able to claim compensation. They allege that these advisers systematically under-played the risks associated with the investment.

The building society’s bosses have continually insisted that there was no widespread mis-selling. Chief executive Matthew Bullock has also said that the society has the reserves to absorb a potential bill of �50m resulting from the Keydata collapse.

The building society could face a substantial fine from the Financial Services Authority (FSA) within weeks. It is believed the society has been ordered to carry out a section 166 report - an independent review of its past business.

N&P spokesman Alison Rolls refused to confirm whether such a report was being carried out. However, she said the society is continuing to work with the FSA and a development is expected early in the New Year.

Referring to the mass complaint, she said: “We have no reason to doubt that customers received brochures, especially as this has not previously been raised as an issue before.

“All customers have the right to complain to us if they are unhappy about any aspect of their sale and of course to go to the Financial Ombudsman Service if we are unable to resolve their complaint.”

Meanwhile ratings agency Fitch has downgraded the N&P from ‘stable’ to ‘negative’ - a move which reflects the challenges the society faces in generating reasonable levels of earnings in the short to medium term but also highlights ‘uncertainty’ over the size of a one-off cost related to Keydata.

The Coventry, Nationwide and Yorkshire building societies are all said to be considering take-over attempts.

Mrs Rolls said the board had a responsibility to consider all options which it believed to be in the best interest of society members.

If you have been affected by mis-sold investment products, please get in touch by emailing robert.setchell@archant.co.uk