Bank of Scotland Fined over Mortgage Errors

by Mark Johnston

Bank of Scotland Fined over Mortgage Errors.

The Bank of Scotland was part of the HBOS group – along with the former Halifax bank – before HBOS itself was taken over by the Lloyds Banking Group in 2009.

In early October 2008, the bank of Scotland had written to some Halifax customers, telling them it would raise the standard variable rate (SVR) ‘cap’ on their mortgages from 2 per cent above the Bank Rate to 3 per cent above it.

However under pressure from the Financial Service Authority (FSA), the bank later realised that its original mortgage offer documents, which had been supplied to some customers, had been confusing.

Therefore after further discussions with the regulator, the bank then tried to put things right, this included a plan to make goodwill payments to the mortgage borrowers who had been misled.

In May 2011 a problem was discovered after a wave of customer complaints about the fact they had not received any payments were found on internet forums, this led staff at the Financial Service Authority (FSA) to ask the Bank of Scotland to look into the matter again.

As a result of this, Bank of Scotland found that 250,000 mortgage customers sent offer letters between 2004 and 2007 that contained confusing information about its standard variable rate cap had incorrectly excluded from goodwill payments of £250.

To make matters worse, it also seemed the bank of Scotland also made payments – worth £20 million to nearly 23,000 customers, who should never have been included in its goodwill programme at all.

The Financial Service Authority (FSA) said it was possible those payments might never have been made by the bank, had it not been for complaints from customers that they had been left out.

The bank of scotland stated that the problems in part was generated by IT systems that did not work together properly. The issue of incompatible IT systems has bedevilled the banking sector in recent months, causing misery to millions of customers.

However the bank did apologised, saying it had co-operated “fully” with the regulator.

Tracey McDermott, director of enforcement and financial crime at the Financial Service Authority (FSA), said the errors showed Bank of Scotland’s mortgage records system was “inadequate”.

The Financial Services Authority said the error arose because the bank had been relying on inaccurate records for considerable periods of time between 2004 and 2011, which meant it could not identify which customers had been affected by the change to the mortgage rate cap.

The regulator went on to add  that goodwill payments totalling £162 million “may not have been received by customers, had their complaints not led to the identification of errors in the information held on bank of Scotland mortgage systems”.

The Bank of Scotland, owner of Halifax, has therefore been fined £4.2 million after an investigation in to complaints by Halifax mortgage customers found that 160,000 homeowners were “incorrectly excluded” from a compensation programme after the lender failed to contact them about important changes to the terms of their loan.




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