The fine applies to Lloyds Bank, Bank of Scotland and The Mortgage Business, all parts of Lloyds Banking Group.
In 2017 the bank revealed it had voluntarily begun a redress programme by proactively contacting customers who were potentially affected, refunding all broken payment arrangement fees, arrears management fees, interest accrued on the fees and litigation fees if applied unfairly or, in some circumstances, automatically.
Affordability failures
The incidents took place between April 2011 and December 2015 and detrimentally affected around 526,000 customers, according to the regulator.
During this period, the FCA found that the banks’ systems and procedures for gathering information from borrowers in payment difficulties or arrears resulted in call handlers not consistently obtaining adequate information to assess circumstances and affordability, creating a risk that customers were treated unfairly.
The regulator noted that the banks also employed a system that set a minimum percentage of a customer’s contractual monthly payment which a call handler was authorised to accept as a payment arrangement without obtaining further authority from a more senior colleague.
However, in practice, the system created a risk of inflexibility in approach, with the result that call handlers may have failed to negotiate appropriate payment arrangements for customers.
It added that these risks were exacerbated when, as part of a simplification programme, the banks lost a large number of personnel with mortgage collections and recoveries expertise, after which point nearly all of their mortgage arrears call handlers were new-to-role.
As a result, the FCA found that the banks breached Principle 3 and Principle 6 of the FCA’s Principles for Businesses between 7 April 2011 and 21 December 2015.
Addressing the situation
Some failings were identified by the banks as early as 2011 but the steps the banks took failed fully to rectify the issues and failings were then identified as part of a thematic review conducted by the FCA in 2013.
During 2014 and 2015 the banks took a number of further steps to address the concerns raised by the FCA and on several occasions informed the FCA they were on track to implement those improvements.
However, the FCA said a further review in July 2015 found they had failed to make sufficient progress in addressing the problems and the banks were required to undertake a Skilled Person’s review.
The banks did not dispute the FCA’s findings and qualified for a 30 per cent discount on the fine which would otherwise have been £91,495,400.
A Lloyds Banking Group spokesperson said: “We have contacted all customers who were affected between 2011 and 2015 to apologise and have already reimbursed all who were charged fees at the time.
“Customers do not need to take any action. We have since taken significant steps to enhance how we support mortgage customers experiencing financial difficulty, including investing in colleague training and procedures.”
Importance of TCF
FCA executive director of enforcement and market oversight Mark Steward highlighted that banks are required to treat customers fairly, even when those customers are in financial difficulties or are having trouble meeting their obligations.
“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,” he said.
“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.
“Firms should take notice of the action we have taken today to ensure that their own treatment of customers meets our expectations,” he added.
The regulator added that all customers affected should have been contacted already, but any customer who has not been contacted and thought they may have been affected should contact their bank.
It emphasised that the fair and appropriate treatment of customers experiencing financial difficulty remained a focus for the FCA and it was working to ensure firms raised standards in this area, especially in the current situation.
“Firms should ensure there is appropriate investment in their staff who work in collections and recoveries, including in training and effective management information, to allow firms to monitor customer outcomes and take appropriate action where needed,” it said.
“The FCA recognises the challenges firms face in this area posed by coronavirus, which only heightens the importance of firms treating customers in financial difficulty fairly and appropriately.”
