Day: April 30, 2014
Halifax to pay £500m to overcharged customers
The credit-crazy Noughties came to an abrupt end in August 2007 when a growing ‘credit crunch’ caused lending levels to collapse.
This led to the infamous run on Northern Rock, the near-collapse and taxpayer-backed rescue of several UK banks, and the worst economic recession since the Great Depression of the 1930s.
Today, although the financial tsunami of 2007/09 has retreated, financial regulators are still clearing up some nasty-looking scandals left behind after this crashing tide went out.
Yet another banking scandal
In the past 20 years, tens of millions of us have lost money in mis-selling scandals involving mortgage endowments, personal pensions, with-profits policies, unapproved-overdraft fees, payment protection insurance, and so on.
This list of regulatory failures goes on and on, so it’s no wonder that public trust in banks is at an all-time low. What’s more, we have good reason to be worried by the behaviour of banks, because today saw yet another scandal added to this long list.
In a shock regulatory announcement released late this morning, Lloyds Banking Group admitted that it had set aside £500 million to compensate yet another batch of ripped-off customers.
When Lloyds slipped up
During the banking meltdown of September 2008, the former Lloyds TSB was forced into a shotgun marriage with ailing lender HBOS. HBOS was itself a product of the merger of Halifax — the UK’s biggest mortgage lender — with Bank of Scotland.
Alas, HBOS’s rash lending during the boom times came back with a vengeance, blowing a big hole in its finances and causing shares in the newly formed Lloyds Banking Group to plummet.
Now it turns out that — just as there is never just one cockroach under the fridge — there are more problems at HBOS than first thought.
Awards averaging £1,667 each
Today, Lloyds confirmed that it had reached a voluntary agreement with financial watchdog the Financial Services Authority (FSA) to set aside £500 million to compensate over-charged Halifax mortgage borrowers.
It turns out that confusing wording in some Halifax mortgage contracts led to some borrowers being treated unfairly. These customers were offered Halifax-branded home loans linked to its standard-variable rate (SVR), between 20 September 2004 and 16 September 2007 via its Bank of Scotland arm.
In January 2009, the Halifax increased the ‘SVR cap’ on home loans from 2% above the Bank of England’s base rate to base rate + 3%. Lloyds now admits that Halifax did not have the right to force this increase on all these customers, hence its decision to back down on this 1% rate rise.
Having pushed these contracts too far, Lloyds has agreed with the FSA to make goodwill payments to all borrowers concerned. Hence, a “pro-active customer review and contact programme” is to begin immediately. Around 600,000 borrowers with Halifax home loans will be contacted by Lloyds, of which half may be due compensation.
With 300,000 customers in line for awards, the half a billion pounds set aside works out at £1,667 per borrower. These refunds will be paid in April via a credit to customers’ mortgage accounts.
Then again, as I often remark, “averages invite comparisons”, so some Halifax borrowers may receive only a few hundred pounds, while others could be in line for payouts of several thousand pounds.
Bad news (and good news) for taxpayers
As you’d expect, this news hit the Lloyds share price, which is down 2% at 68p as I write. At a stroke, today’s news has wiped £900 million from the market value of Lloyds.
Now for the extra-bad news: all British adults will lose out because of this mess-up at HBOS. That’s because, following a £17.4 billion government bailout of Lloyds, taxpayers own 27.6 billion shares in Lloyds. In effect, we own over two-fifths (41%) of Lloyds’ share base.
Thus, thanks to the drop in Lloyds’ share price, the UK’s 48 million adults have lost almost £370 million today, or roughly £8 each. What on Earth did we do wrong?
Finally, it’s worth pointing out that we taxpayers bought our stake in Lloyds at an average price of 63.2p a share. Therefore, we are sitting on a current profit of 4.8p a share, or £1,325 million. That should cheer you up a bit!
http://www.lovemoney.com/news/property-and-mortgages/mortgages/11197/halifax-to-pay-500m-to-overcharged-customers
Bank overcharging in the UK
Unhappy customers
In the past year some 206,121 people lodged a complaint with the Financial Ombudsman Service (FOS). The FOS does not say how many of these complaints were about the miscalculation of interest charges, but it is safe to say that bank customers are not at all happy with the service they are getting.
‘Most of the complaints we receive about interest miscalculations are to do with credit cards,’ says Philippa Cook of the FOS. Many complaints are the result of the consumer not understanding how interest charges are applied, but if there is a mistake, the FOS sends the complaint back to the bank to work out any compensation – which is not entirely reassuring.
Which? confirms that credit card companies are the worst offenders too. ‘The methods that the credit card companies use to calculate interest are so labyrinthine that even the experts can’t work it out,’ says Martyn Saville, senior researcher at Which?.
Mark Christian, a partner in the Banking Alliance, which runs a bank-account checking service for businesses, says ‘We have been consulting to banks for 25 years in more than 20 countries, so we had a pretty good idea there was a problem. The Gordon Brown-sponsored report from 2001 estimated that £3 billion to £5 billion overcharging is probably the tip of the iceberg.’
Complex equations
Part of the problem in challenging the banks and building societies is that, on overdrafts in particular, interest is charged on the daily cleared balance – which is not the same as the balances shown on your bank statements. It may take up to three or four working days for a balance on your account to be ‘cleared’.
In addition, interest is calculated by reference to a fixed percentage over bank base rate, or in the case of some financial institutions, by reference to its own ‘base rate’, which may be linked to the more volatile Libor (the rate at which banks lend to each other).
This means that in order to calculate the interest charge on an overdraft you need to do a daily calculation using an interest rate that may fluctuate frequently. If the interest rate charged is incorrect, then the daily cleared balances will be wrong too because of the compounding effect of incorrect charges.
Mortgages
If you are checking interest charges on a mortgage, you need to know precisely how the lender calculates charges as this can vary widely. A few lenders still calculate the interest charge for the coming year based on the previous year-end balance outstanding. This means that during the course of the year no allowance is made for monthly repayments of the capital borrowed.
The effect of this is that the true rate of interest is higher than the rate quoted. Other lenders calculate interest on a daily basis and some on a weekly, monthly or quarterly basis. All this makes checking difficult.
Savings accounts are another problem, particularly variable-rate instant-access accounts, where the daily balance can vary widely. In the face of these complications, most people give up unless the mistake is so obvious that it can be spotted without going through these tedious calculations. There are firms that will check your bank accounts using a computer system, but most are based in the US or Australia.
Business accounts
Checking company bank account interest charges is even more complicated, because most firms are charged interest on the daily cleared net amount owing on all their accounts together. This is the sum of all the overdrawn balances on each account less the sum of the credit balances.
http://citywire.co.uk/money/is-your-bank-overcharging-you/a534337
Mortgage Complaints Worldwide
Many of the complaints we see involving mortgages have arisen because of a difference between how customers expect their mortgage to work, and how it works in practice. Most people who take out a mortgage have some idea how it operates. However, relatively few mortgage customers have much understanding of the technicalities. Without first asking their lender, for example, many mortgage customers would be unable to say in detail exactly what practical effects a change in their mortgage arrangements would bring about.
Because a mortgage loan is usually for a large amount of money, quite small changes can – over time – make a significant difference in money terms. So mortgage customers can sometimes end up with a very unwelcome surprise if they have not fully understood what the consequences of a change would be. This is even more likely to be the case for customers who are experiencing financial difficulty and have limited options.
We are sometimes disappointed that the mortgage lender did not make greater efforts to explain matters to their customer when a problem or query first arose.
Even where lenders do attempt to explain matters, we see cases where they have failed to address an important point – or have given the customer an explanation that was wrong. In a fair number of disputes it seems to us that more effective communication on the part of the lender might well have prevented the complaint from arising in the first place.
http://www.financial-ombudsman.org.uk/publications/ombudsman-news/70/70-mortgage-complaints.html
One of UK's biggest mortgage lenders fined £10m for overcharging customers
mortgage lenders overcharging customers
One of Britain’s biggest mortgage lenders has been handed a record £10.5 million in fines after exploiting more than 46,000 desperate homeowners.
GMAC, part of giant American firm General Motors, was found guilty of overcharging struggling customers when they missed mortgage payments, paid off their loans or had their accounts passed on to solicitors.
It also failed to take in to consideration the budgets of borrowers with debts and of starting repossession proceedings when it was not the last resort. Many of the homeowners were left worse off as a result.
GMAC was slapped with a £2.8 million fine and ordered to pay back £7.7 million plus interest to customers by the City watchdog Financial Services Authority.
Margaret Cole, director of enforcement and financial crime for the FSA, said: ‘This case sets a precedent and illustrates our determination to deliver fast outcomes for consumers.
‘It is an excellent example of what the FSA’s more intrusive approach can achieve for consumers, and we hope it will deter other firms from not treating customers fairly.’
During the housing boom GMAC was one of the 10 biggest mortgage companies in the UK, lending more than £12 billion a year to a mixture of nearly 200,000 ordinary homeowners, landlords and those who had already struggled with debts previously.
It was hit hard by the credit crunch, and stopped lending new home loans in May 2008.
The FSA investigation found that between 2004 and 2008 GMAC was charging borrowers who failed to meet a mortgage repayment £15 for missed direct debits. They also charged too much for referring a case to solicitors.
Margaret Cole hopes the decision will help deter other firms from treating the customers unfairly
The FSA’s Margaret Cole hopes the decision will help deter other firms from treating the customers unfairly
Those that paid off their mortgages early were charged extra penalties for the money they owed in fees. The FSA ruled that all these charges were excessive and customers should be handed back the excess charges.
The watchdog also discovered that homeowners who failed to meet their mortgage bills were put on to repayment plans that did not take in to account their household budgets, and as a result many were threatened with losing their home. Many of these were never given the option of setting up other repayment plans to save their property.
A third of those customers who had repossession proceedings started against them later lost their homes.
A spokesman for GMAC said: ‘We want to apologise to customers affected. We have worked openly with the FSA to review and revise our procedures for managing accounts in arrears.
‘Whilst our arrears charges were in line with the market, in hindsight, we fully accept that for certain fees our estimates of the costs were not proportionate to the additional administration actually required.
‘We will be writing to customers who incurred these specific charges when in arrears and will re-credit the charges plus interest.’
The FSA is clamping down on mortgage companies who fail to deal with customers fairly.
In August this year trade body the Council of Mortgage Lenders warned members that fees imposed on customers for those in arrears had to reflect the actual costs of any work carried out.
A spokesman for GMAC said: ‘We want to apologise to customers affected. We have worked openly with the FSA to review and revise our procedures for managing accounts in arrears.
‘Whilst our arrears charges were in line with the market, in hindsight, we fully accept that for certain fees our estimates of the costs were not proportionate to the additional administration actually required. We will be writing to customers who incurred these specific charges when in arrears and will re-credit the charges plus interest.’
Figures released by the FSA yesterday showed complaints from homeowners who had missed mortgage repayments had increased by 41 per cent in the first six months of this year compared to the same period last year. Some 39,181 were received between January and June.
And there was a further boost for the housing market as the Bank of England reported the number of home loans for those buying a property hit an 18-month high in September. The number of mortgages approved for purchases rose to 56,215 from the previous month’s figure of 52,970.
Mortgage lending increased by £922 million in September, less than the £1.28 billion in August but above the average for the last six-months.
However, economists warned that until unemployment fell and banks started offering cheaper mortgages for borrowers with small deposits the housing market was likely to slow again.
http://www.dailymail.co.uk/news/article-1223808/One-UKs-biggest-mortgage-lenders-fined-10m-overcharging-customers.html#ixzz30Lrp5Qqp