Lloyds Banking Group is setting up a redress scheme that will see £283m paid out to 590,000 customers charged fees, including litigation fees, when falling into mortgage arrears.
The Financial Conduct Authority (FCA) announced this morning that after engaging with the regulator, Lloyds acknowledged that when customers fell into arrears, the bank did not always do enough to understand customers’ circumstances to ensure payment plans were affordable and sustainable.
After talks with the FCA, Lloyds has committed to refund all fees charged to customers for arrears management and broken payment arrangements during a seven-year period - from January 1 2009 to January 2016. Lloyds suspended arrears management fees back in January 2016.
For mortgage customers who entered Lloyds’ litigation process during this seven-year period, refunds will include any litigation fees that were applied unfairly.
Lloyds will also offer payments for “potential distress and inconvenience”, and consequential loss which customers may have experienced as a result of not being able to keep up with “unsustainable repayment plans.”
Credit Strategy first revealed in July last year that the FCA had started its review into how Lloyds had been handling customers in mortgage arrears.
Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA, said: “Ensuring fair treatment of customers, especially those in financial difficulties or who are vulnerable, is key priority for the FCA. We continue to engage with Lloyds as it works to improve the way it treats customers in arrears.”
The FCA said the redress scheme will refund the accrued interest on all fees up to the remediation date or, where customers have already paid the fees, the date when the fees were paid. Lloyds will also pay an extra eight percent interest for customers deprived of funds.
Lloyds will write to all affected customers to explain the refund they will receive and to prompt them to make a claim for any distress and inconvenience they may have suffered.
The bank will also advise customers to consider whether they suffered any “consequential losses” as result of this issue, such as a direct debit fee charged because of a broken payment plan.
The regulator said it continues to engage with Lloyds and the retail lending sector to continue to raise standards and ensure the fair treatment of customers in arrears and financial difficulties.