Banks fined for failures in mortgage arrears handling

The FCA has issued a £64m fine to Lloyds Bank, the Bank of Scotland and The Mortgage Business for failures in relation to their handling of mortgage customers in payment difficulties or arrears.

Between April 2011 and December 2015, the three banks’ systems and procedures for gathering information from mortgage customers in payment difficulties or arrears resulted in call handlers “not consistently obtaining adequate information” to assess the circumstances of their customers. The FCA suggested this created a risk that customers were treated unfairly.

The banks also employed a system that set a minimum percentage of a customer’s contractual monthly payment which a call handler was authorised to accept as a payment arrangement, without obtaining further authority from a more senior colleague. The FCA found that the banks had breached its Principles for Businesses between 7 April 2011 and 21 December 2015.

In 2017, the banks implemented a group-wide customer redress scheme which included refunding all broken payment arrangement fees, arrears management fees and interest accrued on the fees, as well as the refund of litigation fees. The banks have estimated that approximately 526,000 customers will have received redress payments totalling £300m.

By November 2019, the banks had already made payments of approximately £259.9m to customers.

FCA executive director of enforcement and market oversight, Mark Steward, said: “Banks are required to treat customers fairly, even when those customers are in financial difficulties or are having trouble meeting their obligations.

“By not sufficiently understanding their customers’ circumstances the banks risked treating unfairly more than a quarter of a million customers in mortgage arrears, over several years.  In some cases, customers were treated unfairly, including vulnerable customers.

“Customers should still pay what is owed, but banks are obliged to treat their customers fairly when making new payment arrangements. Firms should take notice of the action we have taken today to ensure that their own treatment of customers meets our expectations.”

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