A review by the Financial Conduct Authority (FCA) has found that an estimated 750,000 mortgage borrowers could be due compensation, after being overcharged because of lenders mishandling arrears.
In addition to arrears sometimes being added to customers’ monthly mortgage payments, lenders would take a separate arrears payment. Consequently, these customers – who were already struggling financially – would then end up overpaying on their loan, and potentially missing other important payments and worsening their situation.
While not everyone may be entitled to compensation, it is believed that approximately 750,000 have been affected. This was based on a review of 10 lenders, who represented two thirds of the mortgages market.
Jonathan Davidson, of the FCA, said: “Even if inadvertent, automatic capitalisation of arrears can lead to poor customer outcomes and firms need to put this right, and make sure the practice stops.
“Customers do not have to take any action at this stage as firms will contact them directly. Firms should start identifying affected customers immediately and not wait until the finalised guidance is published.”
Those who have been affected should be contacted by June 2017, and receive their compensation within 12 months, “with estimated remediation likely to be in the low hundreds of pounds.”
Director General of the Council of Mortgage Lenders, Paul Smee, said: “Those lenders who used the arrears calculation methodology now identified as problematic did so in good faith, believing that they complied with the rules and were acting in customer interests. They are fully committed to delivering fair outcomes for all customers, past and present.”