On 11 June 2020, the Financial Conduct Authority (FCA) fined Lloyds Bank plc, Bank of Scotland plc and The Mortgage Business plc (the Banks) £64,046,800 for breaches relating to their handling of the mortgage payment arrangements of their customers who fell into arrears. The fine, the largest fine any UK high street lender has received since 2015, was reduced by 30 per cent from £91,495,400 due to the Banks not disputing the FCA’s decision.
It is interesting to note the high level of the fine given that the FCA acknowledged the breaches were made inadvertently and that the Banks had already made payments totalling £300 million to 526,000 of their mortgage customers, under a group-wide customer redress scheme implemented in 2017. In our view this indicates the high importance that the FCA continues to place on issues affecting the fair treatment of customers and that the FCA will take stringent action where standards fall short.
Why were the Banks fined?
The Banks were fined for breaches made between April 2011 and December 2015 with regard to their treatment of customers who were unable to meet their mortgage payment obligations. The FCA found that the Banks’ systems and procedures meant that, in some cases, these customers were treated unfairly.
In particular, the FCA said that the Banks’ systems and procedures for gathering information from their mortgage customers who experienced difficulties in making payments meant that the Banks did not obtain adequate information in order to fully assess the circumstances of these customers. In the FCA’s view this created a risk that customers, including vulnerable customers, were treated unfairly.
The Banks also had inflexible processes in place which meant that a call handler could not accept payments below a minimum percentage of a customer’s contractual monthly payment without authority from a senior colleague. This resulted in customers being unable to negotiate payment arrangements that were appropriate for them.
The risks were further exacerbated when the Banks cut jobs, which resulted in nearly all of the call handlers for mortgage arrears being inexperienced and new to their roles.
Although the Banks initially identified these failings in 2011, they failed to fully rectify the issues. Following a thematic review in 2013, the Banks tried to address the issues again, but in July 2015 the FCA found that they had not made significant progress. The watchdog ordered a “Skilled Person’s review” into the Banks’ mortgage arrears handling processes which identified that customers continued to be treated unfairly despite steps taken by the Banks to address failings.
As a result, the FCA has found that the Banks breached the following principles of the FCA’s Principles of Businesses:
- Principle 3: Management and control – a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems; and
- Principle 6: Customers’ interests – a firm must pay due regard to the interests of its customers and to treat them fairly.
The FCA has advised firms to take notice of its actions against the Banks and to ensure that their own treatment of customers complies with the FCA’s expectations.
Whilst customers should still pay what they owe to the lenders, where customers are in financial difficulties or are unable to meet their payment obligations, lenders are obliged to treat these customers fairly. To meet this obligation firms must ensure that they understand their customers’ circumstances sufficiently so that they can agree fair payment arrangements with them.
Furthermore, firms should ensure that staff who work in their collections and recoveries teams receive appropriate training and management information.
The FCA have said they recognise that COVID-19 creates new challenges for firms, but that this increases the importance of treating customers who are in financial difficulties fairly.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, July 2020