Clydesdale compensation: what borrowers need to know

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The Financial Conduct Authority has fined Clydesdale Bank for treating 42,500 variable rate mortgage customers unfairly. We run through what has happened and what borrowers need to know…

The bank has been fined £8.9m for failing to inform customers clearly of their rights after it miscalculated the repayments on thousands of mortgages across the country.

Why is Clydesdale compensating borrowers? An error in the bank’s systems led to customers making incorrect mortgage repayments. When Clydesdale, which owns Yorkshire Bank, discovered the problem, it demanded borrowers of both brands repay the shortfall in 2010 by handing over larger monthly repayments. The Financial Conduct Authority has fined the lender £8.9m for treating customers unfairly. In response to the FCA judgement, the lender has also come up with a compensation plan.

Which borrowers have been affected? The rate hike hit roughly 42,500 variable rate mortgage borrowers with loans from Clydesdale or Yorkshire Bank. The majority of borrowers received previous correspondence from the lender when it decided to increase repayments in 2010.

How does the lender say it will make things right? Clydesdale has promised to contact all affected customers and it says it will automatically compensate 14,000 customers who underpaid within 48 hours. However, it has stopped short of compensating all customers immediately. Chief executive David Thorburn says: “We will work with the remaining customers, whose cases are more complex, to discuss how they may have been affected and what their options are.”

Which borrowers are likely to receive instant compensation? Borrowers who have open mortgage accounts, where it is straightforward for the lender to calculate the shortfall and compensate them directly.

Which borrowers could be waiting longer to hear? Borrowers who have closed their accounts with Clydesdale or Yorkshire Bank, either because they have remortgaged or repaid their mortgage. Borrowers who have been voluntarily over-repaying will also be treated separately.The lender plans to contact these borrowers by mid-October.

Should these borrowers expect different treatment? Clydesdale has promised to write off the entire shortfall for all affected borrowers and make a payment representing interest costs. Where appropriate, it will also recalculate the reduced payment amount. Those who have overpaid as a result of the original error can ask for a refund. If the higher monthly payment has resulted in financial difficulties, additional compensation could be paid. However, cases where the borrower intentionally overpaid in order to reduce their mortgage balance more quickly will be assessed on an individual basis. Where the borrower has closed their account, the lender will begin by sending a letter to the last address. The type of compensation will be in line with that of existing customers.

Can affected borrowers do anything? Clydesdale is asking borrowers to wait until they receive a letter. However, some borrowers will have moved since they left the lender. Therefore, those who do not receive a letter by mid-October may want to contact the lender. Customers retain the right to complain through normal channels and refer to the Financial Ombudsman Service if they wish.

Can a mortgage adviser help? Not yet. In its letters to borrowers, Clydesdale will include the number of a customer helpline, where it says staff will be best-placed to answer any queries. John Charcol senior technical manager Ray Boulger says this is sensible, since only Clydesdale holds detailed information on what went wrong. However, he says borrowers may want to contact a mortgage adviser once they know more: “If people are not happy with what they are told by Clydesdale, that is the time they should speak to a broker.”