The Financial Conduct Authority (FCA) has fined Lloyds Bank, Bank of Scotland and The Mortgage Business over £64m for failures over their handling of mortgage arrears.
The regulator also said the banks have estimated that they will have paid about £300m in redress to 526,000 customers, with the programme nearly complete, due to breaches in how they handled customers who were either in payment difficulties or arrears.
Between April 2011 and December 2015, the 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 customers’ circumstances and affordability, creating 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.
In practice, the FCA said, the system created a risk of inflexibility in approach, with the result that call handlers may have failed to negotiate the right payment arrangements for customers.
These risks were exacerbated when, as part of a simplification programme, the banks lost a large number of personnel with mortgage collections and recoveries expertise, after which point nearly all of their mortgage arrears call handlers were new to the role.
The FCA therefore found that the banks breached Principle 3 and Principle 6 of the FCA’s Principles for Businesses between April 7 2011 and December 21 2015.
Mark Steward, executive director of enforcement and market oversight at the FCA, 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.”
He added: “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.”
Some of the failings were identified by the banks as early as 2011, but the FCA said the steps they took "failed fully to rectify the issues". Failings were then identified as part of a thematic review by the FCA in 2013. During 2014 and 2015 the banks took more steps to address the regulator’s concerns and informed the FCA regularly that improvements were on track.
However, another FCA review in July 2015 found the banks had failed to make sufficient progress in addressing the problems. The lenders were then required to undertake a Skilled Person’s review.
The banks did not dispute the FCA’s findings and exercised their right, under the FCA’s partly contested case process, to ask the FCA’s Regulatory Decisions Committee to assess the appropriate level of sanction. The banks’ agreement to accept the FCA’s findings meant they qualified for a 30 percent discount. Otherwise, the FCA would have imposed a financial penalty of more than £90m.
In July 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 and the refund of litigation fees.
By November 2019 the banks had already made payments of just under £260m to customers