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Co-op Bank told to pay mortgage prisoners for SVR hikes

  • 14/11/2023
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Co-op Bank told to pay mortgage prisoners for SVR hikes
The Financial Ombudsman Service (FOS) has told the Co-operative Bank to redress mortgage borrowers who were charged increasing standard variable rates (SVRs) over a historic three year period.

The Ombudsman confirmed its decision that the Co-operative Banking group’s subsidiary Mortgage Agency Services No.5 (MAS5) “treated customers unfairly” by increasing the SVR from 2.99 per cent to 5.75 per cent over the period 2009 to 2012. 

Last year, the group took the FOS to court to challenge whether it had the right to investigate the increased SVR charged to mortgage borrowers on its closed book. This was later dismissed by the High Court. 

MAS5 claimed that the four increases to the SVR reflected the changing cost of funds, but the FOS found that “the evidence doesn’t show that there were changes in the overall costs MAS5 was liable itself to pay for the funds that it used”. 

It added: “As a result, the changes to the SVR MAS5 made between 2009 and 2012 – which collectively added 2.76 per cent to the SVR – were not made for reasons permitted by the contract.” 

The FOS concluded: “The evidence shows that MAS5’s cost of funding did not increase.” 

The All-Party Parliamentary Group (APPG) on Mortgage Prisoners has also called on the Financial Conduct Authority (FCA) to investigate the lender and its conduct. 

It said it had received reports regarding the treatment of vulnerable customers which had been passed on to the regulator. 

The APPG said borrowers had “suffered serious financial hardship, mental breakdowns and attempted suicide”. 

The APPG has written to Nick Slape, chief executive of the Co-operative Bank, asking him to pay full redress to borrowers, halt threats of repossession to MAS5 customers until their case has been reviewed by the FOS and to allow borrowers to access the rates available through the Co-operative Bank. 

It has also requested the SVR be cut by 2.76 per cent to reflect the increases and carry out an independent investigation. 

The amounts potentially payable to borrowers will depend on their financial circumstances, the size of their mortgage, the repayment structure and when they made a complaint. Borrowers who have been in arrears or subject to repossessions could request a refund for additional fees.


Co-op ‘committed’ to supporting borrowers

A spokesperson for the Co-operative Bank said: “The Bank has received a final decision from the Financial Ombudsman Service (‘FOS’) on two long-standing customer complaint cases that refers to historic standard variable rate (‘SVR’) changes made to some of our Mortgage Agency Services 5 Limited (‘MAS5’) mortgages over a decade ago. MAS5 is a former Britannia Building Society subsidiary that became a Bank subsidiary after the merger between Britannia Building Society and the Bank in 2009.

“The Bank believes that the historic MAS5 SVR changes were all made in accordance with the terms and conditions of the mortgage contracts and reflected the financial, economic and market conditions at the time. As such, we are disappointed that, in partially upholding the complaints, the FOS has come to a different conclusion.

“The Bank is now working through the details of the final FOS decision and will endeavour to progress this as quickly as possible to determine next steps.

“We remain committed to providing our customers with the support and appropriate forbearance measures they need based on their individual circumstances. We have proactively sought ways to assist customers that could be considered as mortgage prisoners, including the option to re-mortgage to a Co-operative Bank mortgage, subject to eligibility, and in line with our commitments as a responsible lender.”


Regulator response 

The APPG has also questioned the FCA and FOS’ responses to the case as it said concerns were first raised in 2019 and again mentioned in 2020. 

The FOS investigated MAS5 in 2013 and 2014, but as no customer was being represented, the breaches of contract were not uncovered. The APPG has written to both organisations to ask why the case was not investigated sooner.

Seema Malhotra MP, co-chair of the APPG on Mortgage Prisoners, said: “The FOS has concluded that the SVR increases by Mortgage Agency Services No.5 (MAS5) Ltd were unfair and not in line with the terms and conditions of the mortgage. These unfair increases have had a devastating impact on customers. Many of these customers have serious health issues or financial problems. 

“It is disgraceful that MAS5 and Co-operative Banking Group customers have been mistreated for over 10 years and that the bank stopped a customer from discussing the unfair SVR increases by requiring them to sign a confidentiality agreement to settle their complaint in 2020. People have suffered mental health issues, attempted suicide and lost their homes – all of this could and should have been prevented.” 

In 2020, an FOS investigator found that MAS5 treated customers unfairly regarding the SVR and a settlement was reached between the customer, MAS5 and the Co-operative Bank. 

Malhotra added: “Now that the Co-operative Banking Group has been shown to have treated customers unfairly by increasing the standard variable rate, it must start living up to its ethical values and pay full refunds to the customers for all of the interest they have overpaid due to the breaches of contract and the 2.76 per cent unfair interest rate increases.  

“Nikhil Rathi needs to take a different approach and ensure that all customers receive full refunds for all of the overpaid interest due to the 2.76 per cent unfair interest rate increases. 

“We need an independent review into what went wrong at the FCA and the FOS.” 

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