The Financial Conduct Authority (FCA) has fined Clydesdale Bank (Clydesdale) for failing to inform its customers clearly of their rights after the bank miscalculated the repayments on over 42,500 mortgages.
Clydesdale, which is owned by National Australia Bank, has agreed to compensate all those who underpaid on their mortgages as a result and write to other affected customers. This process has been agreed with the FCA, which has an objective to secure an appropriate degree of protection for consumers.
In April 2009 Clydesdale discovered an error in how it had calculated mortgage repayments for customers with variable rate mortgages. As a result of the error, incorrect repayments were made on over 42,500 customer accounts. Of these, approximately 22,000 accounts were left with shortfalls because customers made repayments that were insufficient to repay their mortgages by the end of the agreed terms. The calculation error was corrected in 2010.
These 22,000 customers then faced unexpected increases in their monthly repayments both to correct the error and to make up for their shortfalls. In total there was a £21.2 million shortfall in Clydesdale mortgages, with customers who underpaid left with mortgage balances higher than they should have been. The shortfalls range from under £20 to over £18,000, with an average of £970.
After discovering the error, Clydesdale contacted customers and set up a dedicated call centre to deal with any queries. However, in seeking repayment from customers as a priority, it wrongly sought to balance its own commercial interests against the requirement to treat customers fairly.
Letters the bank sent to customers suggested that they had no alternative but to bring their repayments up to date. Many customers, however, could have rejected demands to repay the shortfalls caused by Clydesdale’s calculation errors. This lack of clarity was compounded by poor instructions to Clydesdale’s call handlers for dealing with customers who called to complain.
Tracey McDermott, the FCA’s director of enforcement and financial crime said of the fine:
"For most people mortgage payments are their biggest monthly outgoing and we all budget on the assumption that the information our mortgage lender gives us about what we need to pay is correct.
"Here Clydesdale failed in that basic duty and, when it discovered the problem, sought to pass all of the consequences on to its customers - expecting them to find the money to remedy mistakes which were entirely of Clydesdale's making.
"Firms must put the interests of customers at the heart of their business if we are to restore trust and confidence in financial services. Clydesdale is today paying the price for its decision to put its bottom line ahead of the need to ensure its customers were treated fairly."
In cases such as this the FCA could require a firm to contact customers and provide redress to those who respond and can show they lost out. The scheme volunteered by Clydesdale goes further; in particular all customers who were left with shortfalls as a result of the error will be automatically compensated. Those who overpaid can make a claim for compensation if they believe they suffered financially as a result of Clydesdale’s error.
The £8.9 million fine was calculated using the penalty regime that the FCA applies to breaches committed from 6 March 2010, which was introduced in part to increase fine levels. The fine would have been higher were it not for Clydesdale’s redress scheme. The scheme, which is welcomed by the FCA, should minimise further inconvenience to customers. Clydesdale also received a 30% discount for settling at an early stage of the enforcement process.
Clydesdale will now write to all customers who were affected by the error who did not receive compensation following the bank’s original communication exercise. Mortgage-holders do not need to do anything until they are contacted by Clydesdale. In the meantime, information about the bank’s further customer communication and redress exercise can be found on its website at www.cbonline.co.uk.
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