Wholly owned subsidiaries of Lloyds Banking Group Plc, Lloyds Bank Plc, Bank of Scotland Plc and The Mortgage Business Plc (collectively referred to in this article as the banks) have all found themselves in the Financial Conduct Authority’s (FCA) firing line after its decision on Thursday (11 June 2020) to impose a financial penalty of £91,495,400, discounted to £64,046,800, for breach of the FCA Principles of Business. Substantial as it is on its own, this penalty is to be paid on top of the £300 million redress payments the banks are currently making to 526,000 of their customers for unfair treatment; all in all, accumulating the largest fine imposed on a UK high street bank seen in the past five years.
The FCA found that during the four-and-a-half-year period beginning April 2011 and ending December 2015, the banks had breached the following Principles when dealing with mortgage customers who were experiencing payment difficulties or were in mortgage arrears:
In contravention of these Principles, the banks had put a large number of their customers at risk of being unfairly treated; in a sample taken during the investigation, unfair treatment was identified in roughly 38% of cases.
During the period in which they breached the above Principles, Lloyds, Bank of Scotland and Mortgage Business did not have the systems in place to adequately gather sufficient information on the circumstances surrounding their customers’ mortgage arrears and/or financial difficulties.
The FCA decision notice stipulates this was exemplified in the following ways:
In delivering this decision, the FCA has illustrated how important it is for banks to both:
Although the breaches by the banks were inadvertent and they have been supportive in all steps of the FCA investigation, the FCA’s message is clear: “firms should take notice of the action we have taken today to ensure that their own treatment of customers meets our expectations.”
Importantly, a bank’s duty to treat its customers fairly does not stop when a customer is in financial difficulty; rather, it is at this point in time when this duty becomes all the more significant. In balancing the business needs of the firm to recover the monies in default and the personal needs of the customer who is in default, an unfair trade-off can easily, and without malice, be drawn against the customer which can cause further financial strains and in some circumstances lead to the deprivation of housing. It is, therefore, important that banks actively take steps to prevent this from happening.