The Financial Conduct Authority (FCA) has published guidance following a review on the way financial institutions should calculate customers’ monthly payments when a regulated mortgage is in payment shortfall (arrears). They found that financial institutions have unintentionally broken their rules.
The guidance says that from 25 June 2010 any arrears on a customers’ account should not have been included as part of the balance used to calculate a mortgage payment. Instead any arrears should have been collected by a separate agreement.
In accordance with the FCA guidance we have reviewed all accounts which may have been affected.
The Background
Before January 2018 we used to calculate your mortgage monthly payment on your outstanding balance, which included any arrears. It resulted in you paying a higher monthly payment than you would otherwise have had to pay. This ensured your mortgage balance was repaid in full by the end of the term and may have resulted in less interest being charged.
Current Position
Any recalculation of your monthly payment from 1 January 2018 will not include any arrears. This means that when we recalculate a customers’ monthly payment it will be without any arrears figure. If only the monthly payment is paid going forward, and the arrears are not cleared by a separate agreement, then the arrears amount (and interest) will remain outstanding when the mortgage term ends.
Do I Need To Do Anything?
If your monthly payments are due to change, we will send you a separate letter confirming the change. Due to the change in the Bank of England Bank Rate in November 2017, most customers’ payments will have been automatically recalculated and you will not receive any further contact from the Society regarding this matter.
There are a small number of customers who may, in line with FCA guidance, receive a refund of charges and/or compensation at 8% simple interest. These customers will be contacted separately before the end of June 2018.
Frequently Asked Questions
Here are some FAQ’s to help you understand more about the customer contact and remediation programme.
Background
How did this happen?
Following a court ruling, the FCA conducted a review of all firms’ handling of arrears and subsequent calculations of monthly payments. It found that firms were unintentionally and automatically collecting the payment shortfall balance over the remaining term of the loan whilst also treating them as immediately payable. The FCA believe that this might be driven by historical calculation systems and mortgage terms and conditions.
What changes have you made to ensure this does not happen again?
The Society contacted its software provider and we have worked together to ensure that this issue was immediately resolved.
Refunds and compensation
How will I know if I am eligible for a refund?
If you are eligible for a refund, we will send you a letter advising the amount of the refund and how this will be paid. You do not have to take any action.
How will refunds/compensation be paid?
Current customers will receive this payment by way of a credit to their mortgage account to reduce the amount outstanding. Customers who no longer have a mortgage with us will receive a cheque.
When can customers expect to get their money back?
We expect to have refunded all eligible customers by the end of June 2018.
Mortgages included in the review
Which mortgages are included?
Residential mortgages are included in the review.
Other questions
How have you calculated my refund/compensation?
Your mortgage payments have been recalculated, without any arrears balance. Any refunds will depend on whether the mortgage payment recalculation is subject to a full remediation as recommended by the FCA. This is where at least one capitalisation has resulted in an additional payment greater than £10.
Does this impact me if I have or am going through litigation or repossession?
We are reviewing all cases of litigation or repossession in line with FCA recommendations.
Will I be eligible for a refund even if my mortgage is paid off?
Yes.
The mortgage holder during that period is deceased. What happens now?
We will contact the executors of the estate to refund any relevant fees.
Has this affected my credit rating?
Part of the process for remediation includes a re-adjustment of information that we have sent to credit reference agencies.
Could my house have been repossessed wrongly because of these fees?
We have no evidence that any property was wrongly repossessed because of previous calculations and fees.
I have moved to a new house and no longer have a mortgage with you?
We will work with tracing companies to establish your current address and will contact you irrespective of whether you have moved to a new house or not.
What Next?
If you would like to speak to an independent third party, there are free support and advice services available. We have listed some organisations below who might be able to help you:
The Money Advice Service – 0300 500 5000
Citizens Advice - 03444 111 444
If you have queries that you would like to speak to us about, please contact us between 9am and 5pm Monday to Friday on 01633 844371. If after contacting us you do not feel the remediation proposed is fair, as part of our internal complaints procedure, you can request a consideration claim for consequential loss, distress or inconvenience or review any other aspects of our decision. If you are not satisfied with our final response you can refer your complaint to the Financial Ombudsman Service (FOS) by calling 0800 0234567 or visit www.financialombudsman.org.uk.
