The FCA has fined Clydesdale Bank £8.9m for failing to treat its mortgage customers fairly after the bank miscalculated repayments on over 42,500 mortgages.
Clydesdale, owned by National Australia Bank, has agreed to compensate borrowers who underpaid on their mortgages as a result of the errors and is writing to other affected customers.
The bank says where its errors resulted in a capital shortfall, it will write off the entire shortfall, make a payment representing interest costs and recalculate the reduced payment where appropriate.
Clydesdale estimates the total cost of redress, including the £8.9m fine, is expected to be approximately £42m. The bank had made a provision for most of this amount by the end of June.
In April 2009 Clydesdale found an error in how it had calculated mortgage repayments for customers with variable rate mortgages. The error meant that incorrect repayments were made on over 42,500 customer accounts.
Of these, around 22,000 accounts were left with shortfalls because repayments were insufficient to repay customers’ mortgages by the end of the term. The calculation error was corrected in 2010.
The FCA says 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 £21.2m shortfall in Clydesdale mortgages, with the shortfalls ranging from under £20 to over £18,000. The average shortfall on affected accounts was £970.
Letters the bank sent to customers suggested 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.
The regulator says this lack of clarity was compounded by poor instructions to Clydesdale’s call handlers for dealing with customers who called to complain.
FCA director of enforcement and financial crime Tracey McDermott says: “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.”
Clydesdale chief executive David Thorburn says: “I am very sorry this was not handled as it should have been. We should have made it clear at the time this was entirely our fault and that some customers may be entitled to compensation.
“Our priority is to fix this for customers as quickly as possible and they will each receive a letter explaining how we will make this right for them.”