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Watchdog orders banks to pay £12m compensation over pandemic failings

banks Signage for the FCA (Financial Conduct Authority), the Britain's financial regulatory body, is seen at their head offices in London, Britain March 10, 2022. REUTERS/Toby Melville
FCA makes banks pay £12m back to 60,000 as pandemic lessons learnt. Photo: Toby Melville/Reuters (Toby Melville / reuters)

The City’s financial watchdog has ordered lenders to pay back millions in compensation to borrowers that were forced to meet “unaffordable” mortgage and loan repayments during the COVID pandemic.

The Financial Conduct Authority (FCA) said compensation handed back to borrowers covers 60,000 customers, as the watchdog calls on lenders to engage with customers more.

The FCA said lenders "must do a lot better to support borrowers in financial difficulty".

“’Given the current cost of living challenges, it’s vital that the sector continues to learn lessons to make sure they support struggling customers,” the watchdog said.

Just 15 out of 50 (30%) firms reviewed sufficiently explored customer’s circumstances, which meant repayment agreements were often unaffordable and unsustainable for many.

Read more: UK service sector contracts steeply as inflation hits business confidence

The FCA has already told 32 firms to make changes to improve the way they treat customers and so far, seven of these firms have voluntarily agreed to pay £12m.

The watchdog will also be reviewing a further 40 firms in the coming months to make sure they are meeting its expectations to protect customers from harm.

The FCA gave an example of one customer who was transferred eight times over 90 minutes, and their question was still not answered, and, at one point, they were transferred back to the agent they originally spoke to.

One customer stated that they had sent an email to the relevant department, but they had not replied. When they tried to call, they were advised of a two hour wait time.

Another customer was transferred to the payment deferral (PD) department while on a call with collections but was advised they could not have one as they had already had six months of PDs. This information was not available to the collections department before transferring the customer. The PD department said that there was "nothing they can do to help" and the customer wasn’t given the opportunity to discuss further alternatives

During the pandemic, the FCA put in place guidance that led to more than 5 million payment deferrals for mortgage and credit customers. This was followed by guidance on tailored support.

“While many firms did well in supporting customers in difficulties during the pandemic, with our support and guidance, others sadly failed their customers,” the FCA’s executive director of consumers and competition, Sheldon Mills, said.

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“Given the current cost of living challenges, it’s vital that the sector continues to learn lessons to make sure they support struggling customers.

“We will take action to restrict or stop firms from lending to people if they fail to meet our requirements that consumers in financial difficulties should be treated fairly.”

In another case, at one firm, customers were prevented from making payments towards their mortgage using the automated phone system while in arrears and not in a payment arrangement. One customer had been trying to make payments to bring the account up to date while not in an arrangement using the automated system but was unable to, resulting in late payment charges being added to their account

The watchdog also called on lenders to ensure their fees are “fair and only reflect the reasonable costs that firms incur” and to consider wether it is appropriate to “reduce, waive or cancel fees and charges.”

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