Clydesdale Bank has been blasted by regulators after it was found to have botched the calculation of mortgage repayments for tens of thousands of customers then charged many of them more to make up the shortfalls.
The damning verdict from the Financial Conduct Authority revealed that the lender had failed in a “basic duty” to borrowers, before seeking to pass on the consequences of its wrongdoing.
It fined the bank £8.9 million over the error, and said the penalty would have been higher but for a redress scheme and a 30% discount for settling at an early stage of the regulators’ investigation.
The lender, owned by National Australia Bank (NAB), discovered the error which affected more than 42,500 customers with variable rate mortgages in April 2009. Around 22,000 accounts were left with shortfalls totalling some £21.2m because of the mistaken underpayments.
These customers then faced unexpected increases in their monthly repayments. While the bank contacted affected customers and set up a dedicated call centre to deal with queries, the FCA said Clydesdale had put its own commercial interests ahead of customers’ needs by wrongly prioritising repayments.
But letters sent by the bank, and badly-briefed call handlers, suggested customers had no option but to make up the balance. In fact, many could have rejected demands to repay the shortfalls.
FCA director of enforcement and financial crime Tracey McDermott said Clydesdale was “paying the price” for putting profits ahead of the need to treat customers fairly.
“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,” she said.
“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.
“Firms must put the interests of customers at the heart of their business if we are to restore trust and confidence in financial services.”
Clydesdale chief executive David Thorburn said he was “very sorry”, and pledged that details of an automatic compensation process would be in the hands of more than 14,000 customers “within 48 hours”.
“We should have made it clear at the time that this was entirely our fault and that some customers may be entitled to compensation,” he said.
“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.
“We will work with the remaining customers, whose cases are more complex, to discuss how they may have been affected and what their options are. The vast majority will hear from us by mid-October.
Citizens Advice Scotland applauded the FCA for its “tough but necessary” action, which it said should give customers the confidence to “fight for their rights”.
“Consumers need regulatory systems that will fight for them and safeguard their interests,” said chief executive Margaret Lynch. “Hopefully this will send a message to all banks that they won’t get away with these sorts of errors.”
The news comes in the same week as the Financial Ombudsman Service found in favour of St Andrews hotelier Jim McGrory, who challenged a ruling it made over the terms and breakage costs associated with a Clydesdale Tailored Business Loan.
Fellow members of the NAB Customer Support Group met in London this week to continue their campaign for the complex loan products to be included in a formal regulatory review.