The UK’s top financial markets watchdog has issued fines worth a total of £64,046,800 against three of the country’s leading bank for failing to treat their customers fairly.
The Financial Conduct Authority (FCA) slammed the sanction against Lloyds Bank, Bank of Scotland and The Mortgage Business after their systems risked seeing them fail to treat mortgage customers in payment difficulties or arrears fairly.
The regulator accused the banks of having breached Principle 3 and Principle 6 of the FCA’s Principles for Businesses between 7 April 2011 and 21 December 2015. In that period, the FCA said that the banks’ systems and procedures for gathering information from mortgage customers in payment difficulties or arrears resulted in the banks’ call handlers not consistently obtaining adequate information to assess customers’ circumstances and affordability, creating a risk that customers were treated unfairly.
Additionally, the FCA noted that the banks had run significant risk of inflexibility in how they treated their clients. Firstly, part of this risk stemmed from a system that set a minimum percentage of a customer’s contractual monthly payment created a risk of inflexibility. 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-role.
Even though the banks noted some of the problems as early as 2011 their attempts to fix them seemingly came to nothing. Moreover, after an FCA review in 2013 unveiled the banks’ failings, the companies set out to try to fix them.
Lloyds Bank, Bank of Scotland and The Mortgage Business apparently told the FCA that they were on their way to solving the issues. Nevertheless, when the FCA reviewed the banks’ operations again in 2015, they found that the banks had failed to make sufficient progress in addressing the problems and the banks were 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% discount. Otherwise, the FCA would have imposed a financial penalty of £91,495,400.
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 if applied unfairly or, in some circumstances, automatically. 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.
“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, executive director of enforcement and market oversight at the FCA. “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.”
The FCA added that the need to treat customers fairly has become even more important in the days of Covid-19 when many people are expected to run in to financial difficulties.
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