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Thousands of mortgage arrears customers may get compensation

Oct 20, 2016 | Money

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Hundreds of thousands of consumers in arrears on mortgage payments may be eligible for damages, after a ruling by the regulator.
The Financial Conduct Authority (FCA) has ordered lenders to work out who’s affected, and how much they’re owed.
The difficulty has arisen where mortgage arrears have been included in regular monthly payments.
That’s left some customers paying higher mortgage payments than they should have been.
As many as 750,000 consumers may have been influenced overall , but not everyone will be entitled to compensation.
For double, a High Court judge in Northern Ireland criticised the Bank of Scotland in 2014 – charging mortgage customers who were in arrears.
Master Ellison said the bank’s conduct had been “unconscionable”.

‘Poor results’
The practice of recalculating mortgage payments to contain any outstanding arrears is known as “automatic capitalisation”.
In effect it means that some customers may have been paying for going into arrears: Once through once, and higher monthly mortgage payments through individual payments to clear the outstanding debt.
In the long run such customers wouldn’t necessarily have lost out, as they’d have repaid their mortgages faster.
Six years ago the then Financial Services Authority (FSA) said automatic capitalisation shouldn’t be enabled when there was a negative impact on customers.
“Even if inadvertent, automatic capitalisation of arrears can result in poor customer results and firms need to put this right, and make sure that the practice stops,” said Jonathan Davidson, the FCA’s manager of oversight for retail and authorisations.
“Customers do not have to take any action at this stage, as firms will contact them directly. Firms should begin identifying affected customers promptly and not wait until the finalised guidance is released.”
The Council of Mortgage Lenders (CML) said banks and building societies had always been transparent in their own charging approaches.

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