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RBS hits critical payout borrower with £3,500 penalty

RBS: Early repayment charge

Royal Bank of Scotland has come under fire for slapping a £3,500 early redemption penalty on a critically-ill borrower who tried to repay a large part of his mortgage with the proceeds of an insurance payout.

The client, who received a payout from his critical-illness insurance, asked if he could use this to pay back a large part of his mortgage balance and claims he was was told he would not be charged as it was from the proceeds of a claim.

But when the customer called at a later date about an unrelated issue, he was told he would be charged £3,500 if overpayments exceeded 10 per cent of the balance.

The borrower’s mortgage adviser, HMG Financial Services mortgage consultant Harry McGinn, says: “It seems that RBS will stoop as low as they possibly can to recoup the losses that they have racked up in previous years.”

A spokesman for RBS says: “Customers can overpay up to 10 per cent each year of the outstanding loan on an RBS mortgage without charge but if customers exceed this amount, then an early repayment charge applies to the amount they have overpaid.”


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Now if only they were this commercial when Fred the Shred and his cabal were in charge, we would not be wasting our tax dollars on shoring these institutions up!!

    ps Is this policy in line with TCF or can they do what they want?

  2. As much as I like to go RBS bashing, unfortunately RBS are not doing anything wrong here. It is not confirmed within the article if the CIC policy is linked to his mortgage or seperate stand alone cover. Either way the client was clearly benefiting from a mortgage rate which included a redemption penalty if repaid early and Mr McGinn should of been aware of this and explained it to the client accordingly. The clients medical situation is unfortunate but banks are under no obligation to waive fee’s out of sympathy.

  3. Who was it that told the client ‘he would not be charged’ is the question. If it was RBS then they are clearly at fault and should make amends. If it was the Mortgage adviser he should know better. Perhaps it would be best if we all give the client the option to include the early repayment charge within the CIC quote and then all bases are covered, no one gets the blame and we are all happy.

  4. RBS are absolutely correct in their policy here.

    The mortgage adviser is at fault by thinking that RBS will waive their redemption penalty becuase of ill health – its unheard of and should have done his/her homework.

  5. Anonymous - RBS Employee 5th May 2011 at 1:51 pm

    Unfortunately, this is a sign of the times. The banking industry and government have mismanaged the finances of this country and as always its the public that bail them out with no return. Maybe the alternative would have been to make multiple payments with each being less than 10%.

  6. It just goes to show how times change. 20 years ago, the lender would have taken a legal charge over the life policy (and I assume the CIC cover is accelerated cover, i.e pays out on death, or earlier if the client suffers a serious and hopefully not terminal illness. I wish Mr M’s client well and hope he goes in to remission).
    If the policy had been charged to the lender as historically used to happen, the lenders would have first call on the monies and would historically not have imposed any early redepmtion penalty. Now that it is rare for a lender to take a legal charge, we have a slight problem as has happened here.
    It would be nice however if the lender could take a view on things and waive the penalty even if not legally obliged to.

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