Lloyds Fined £64 Million For Mistreating Mortgage Customers

The City watchdog has fined Lloyds Banking Group £64 million for mistreating thousands of mortgage borrowers who were in arrears.

The Financial Conduct Authority (FCA) says the bank and its subsidiaries Bank of Scotland and the Mortgage Business put thousands of customers in financial difficulty on mortgage repayment plans they couldn’t afford. 

The failures relate to a system the lenders used between April 2011 and December 2015 to gather information from mortgage customers in payment difficulties or arrears. The system made customers accept a set minimum payment arrangement without considering their individual circumstances. 

Call handlers also did not have access to adequate information to assess customers’ circumstances and failed to negotiate more appropriate payment arrangements for these customers. The problem escalated after Lloyds combined its mortgage handling and unsecured lending call handler teams, losing experienced mortgage staff and replacing them with people new to the role.

The bank identified the failures as early as 2011 but “failed to fully rectify the issues,” the FCA said.

Mark Steward, executive director of enforcement and market oversight at the FCA, said: “By not sufficiently understanding their customers’ circumstances the banks risked treating unfairly more than a quarter of a million customers in mortgage arrears, over several years. In some cases, customers were treated unfairly, including vulnerable customers.

“Customers should still pay what is owed, but banks are obliged to treat their customers fairly when making new payment arrangements.”

Lloyds accepted the FCA’s findings, which led to a 30% reduction of the original £91.5 million fine.

526,000 customers were affected. Lloyds launched a compensation scheme for them in July 2017, refunding all fees and interest paid, for a total bill of approximately £300 million.

Lloyds said nearly all impacted customers have now been contacted and reimbursed. The FCA said that any customer who has not been contacted and thinks they have been affected should contact their lender.

The bank said it changed the way it supports mortgage customers in financial difficulty.

“We have since taken significant steps to enhance how we support mortgage customers experiencing financial difficulty, including investing in colleague training and procedures,” a spokesperson said.