HSBC to pay back customers for 'unreasonable' debt collection

Europe's largest bank is to contact customers to offer them redress after regulators identified 'unreasonable' debt collection practices.

The Financial Conduct Authority (FCA) said HSBC had offered to establish a £4m fund to repay 6,700 people hit with unfair legal charges after they fell into arrears between 2003 and 2009.

The City watchdog said the costs were imposed by HSBC-owned HFC Bank and John Lewis Financial Services after customers were referred to the firms' nominated solicitors.

It said they added 16.4% of the balance due to the account as a debt collection charge, which the FCA said did not reflect the true cost of recovering the money.

It also found that HFC miscalculated interest payments to hundreds of customers.

The FCA said the bank was contacting both sets of victims and would pay them an additional 8% as a form of compensation.

HSBC said: "We have revisited the debt collection charge and as a result a small number of HFC and John Lewis Financial Services Limited customers may be due a refund.

"We will be directly contacting these customers shortly."

The case is among many to have tarnished the reputation of banks in the run-up to, and since, the financial crisis.

In addition to bailouts and massive fines for the manipulation of market interest rates, the mis-selling of financial products has also proved costly.

It is estimated that the payment protection insurance scandal alone will have cost UK banks more than £35bn by the time compensation claims end.

The windfall for consumers has been credited in the past with helping drive economic recovery from the financial crisis.