Lloyds, Others Fined £64M for Treating Mortgage Customers Unfairly

The Financial Conduct Authority has fined Lloyds Bank, Bank of Scotland and The Mortgage Business £64,046,800 for failing to properly handle mortgage customers who are having difficultly paying or are in arrears.

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

Between April 2011 and December 2015, the banks’ procedures for collecting information from mortgage customers with financial difficulties resulted in the banks not consistently gathering sufficient information to determine the  customers’ circumstances and affordability. This compromised customers by creating the potential for unfair treatment.

The FCA found that the banks neglected to help mortgage customers who were vulnerable, due to divorce, the death of a spouse, job loss and, in one case, when a family member had gone missing, according to a Reuters report. 

Mortgage customers were also put at risk by the banks’ system establishing that bank employees were authorised to arrange for and obtain a minimum percentage of a customer’s monthly payment without acquiring additional authority from a higher-ranking colleague.

In practice, the banking procedure created inflexibility for the mortgage customers because bank call handlers may have declined to negotiate suitable payment arrangements. 

Lloyds identified the problem back in 2011, according to The Guardian, but didn’t fully redress the situation.

Deficiencies were pinpointed during a review conducted by the FCA in 2013. The banks took many steps in 2014 and 2015 to address the FCA’s concerns over mortgage customers and told the FCA they were beginning to implement improvements.

However, a further investigation by the FCA in July 2015 found that the banks had still not made significant progress attending to struggling mortgage customers. It’s estimated the banks have paid nearly £300 million in redress payments to 526,000 customers since 2015. 

The Lloyds fine was reduced by 30% because the banks accepted the FCA’s investigation and did not contest its findings. The fine is the largest charged by the FCA for mortgage-related failures. Had the bank not agreed to recognise the watchdog’s investigation from the beginning, the Lloyds fine would have been a hefty £91.5 million. 

In July 2017, the banks refunded to mortgage customers all defaulted payment arrangement fees, arrears management fees and interest accrued on the fees. 

The banks paid £259.9 million to customers by November 2019. Due to the Lloyds fine, all banking customers who are due a refund should have received it, but any customer who has not been contacted but believes they are due a refund should contact their bank.

“We have since taken significant steps to enhance how we support mortgage customers experiencing financial difficulty, including investing in colleague training and procedures,” Lloyds said in a statement.

The Lloyds fine is a reminder by the FCA that banks should treat all customers fairly during difficult financial times, including the COVID-19 outbreak. The FCA is still working on ensuring all firms are held to high standards regarding customer care.

Do you a mortgage customer and believe you are owed a refund? Let us know in the comments.

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