Clydesdale Bank is facing a bill of £42m to deal with its miscalculation of mortgage rates and subsequent failings in its redress scheme.
The bank has to pay an £8.9m FCA fine by October 14 as well as writing off mortgage underpayments and organising a redress scheme.
In April 2009 the bank realised mortgage rates were being wrongly calculated whenever there was an interest rate change affecting 42,000 customers and leaving a £21.2m shortfall.
In September 2009 it corrected the IT error and began writing to customers to inform them how they may have been affected.
The FCA final notice, published today, details how Clydesdale ignored Financial Ombudsman Service guidance to write off customer shortfalls. Around 600 complaints were referred to the FOS about Clydesdale’s mortgage errors, most of which were upheld.
The FCA says Clydesdale balanced commercial interests alongside Treating Customers Fairly rules and did not make it clear to customers that it was at fault for the error.
The impact left many customers facing increases of more than £500 a month to their mortgage payments to ensure they could still pay off their mortgage on time.
Here we outline some of the key failings of Clydesdale Bank and how these impacted customers:
Inadequate redress scheme
Clydesdale paid or credited £3.6m in redress to affected customers but the FCA says it should have been more if it had communicated its errors more clearly.
The bank sent information suggesting customers were still on course to repay their mortgages at the end of the agreed term.
The FCA says the bank took “too long” to correct the situation and did not make it clear to customers that the mistake was the bank’s fault.
It also suggested customers had “no option” but to make up the shortfall, when they could have rejected the extra payments.
“We were all very aware of TCF, the FOS position but…”
FOS guidance relating to lender errors in calculating mortgage rates is to repay shortfalls in full but Clydesdale ignored its advice.
An internal email sent on 3 August 2009 stated: ”We all agreed the issue is very complex and difficult to get right from all perspectives. We were all very aware of TCF, FOS position, but also the commercial view – if we basically said “sorry for the mistake and we have adjusted your account, but going foirward [sic] your payment will be £x” then the costs could be as much as £25m…
“I realise there are TCF considerations but the amounts for the majority are relatively low, so we should be able to point out our error as part of the review and move the cases back to a correct payment strategy going forward.”
£18,500 mortgage shortfall
The error affected 42,648 mortgage accounts, around one third of Clydesdale’s mortgage book.
Of these accounts, Clydesdale identified that 21,844 had capital shortfalls as a result of underpayments.
The impact of the error varied significantly between different customers.
One customer had a capital shortfall of £18,501 while another had a shortfall of less than £20. The average capital shortfall was £970.
£500 increases to monthly mortgage payments
As a result of capital shortfalls, Clydesdale customers were faced with various payment options to make up the difference and ensure they paid off their mortgage on time:
- For 3,719 mortgage accounts, there was a monthly increase of under £2
- For 1,907 mortgage accounts, there was a monthly increase of between £2 to £5
- For 1,815 mortgage accounts, there was a monthly increase of between £5 to £10
- For 7,040 mortgage accounts, there was a monthly increase of between £10 to £50
- For 3,535 mortgage accounts, there a monthly increase of between £50 to £100
- For 2,409 mortgage accounts, there was a monthly increase of between £100 to £200
- For 1,247 mortgage accounts, there was a monthly increase of between £200 to £500
- For 172 mortgage accounts, there was a monthly increase of over £500.