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Co-op mortgage customers to get pay-out after bank miscalculation

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  • 21/10/2013
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Co-op mortgage customers to get pay-out after bank miscalculation
Mortgage customers with the Co-operative Bank are set to receive compensation after the bank uncovered an error which saw customers unknowingly overpaying their mortgage.

The lender has not yet notified the customers affected and a spokesperson told Mortgage Solutions it was not in a position to disclose how many mortgage accounts were affected.

The bank also said it was unable to say how much of its £100m extra provision would be used to compensate these customers.

The troubled bank also announced this morning it would set aside around £100m to fund extra PPI claims, arrears charges and redress to customers who overpaid on their mortgages after a bank error with their first payments.

Instead of both paying off interest and paying down capital as intended, the bank failed to do the latter. This meant borrowers were faced with higher payments for the rest of their term and the bank will now provide redress to the affected customers.

The loans originated from the Co-op’s intermediary channel Platform and the now-closed Optimum mortgage brand, a former part of Britannia Building Society.

“The bank has made a re-assessment of certain likely future conduct costs and, as a result, the bank expects to increase its overall provisions by approximately £100-105m,” Co-op Bank said in a statement.

“The bank’s estimates of existing provisions relating to customer redress have been revised, with these revisions relating primarily to a change in assumptions regarding the future costs of PPI redress, arrears charges and the processing of certain mortgage interest ‘first payments’.

“An additional provision has also been made in relation to the cost of customer redress that will be required following the identification of a technical breach of the Consumer Credit Act.”

The Co-operative Group has also lost control of its banking arm after investors rejected a plan to save the troubled firm over the weekend.

It was revealed in the summer Co-op Bank faced a £1.5bn capital shortfall, prompting a restructure of the organisation. Under the original rescue plan Co-op Group would have retained a stake of around 70% in the bank after floatation on the stock exchange but this figure has now been lowered to 30% after discussions with creditors.

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