FCA announces potential compensation for mortgage customers affected by double billing

The Financial Conduct Authority (FCA)  announced that it will consult on new guidance on the treatment of customers with mortgage arrears. This guidance covers potential compensation for mortgage customers who may have been affected by double billing. This is when a lender adds the arrears to the outstanding mortgage balance, without the borrowers’ consent.

Housing Rights identified double billing

Housing Rights brought a case to the High Court in 2014 that highlighted the practice of double billing. Our solicitors and advisers' investigations showed that the Bank of Scotland had been capitalising the borrowers’ mortgage arrears by adding the arrears to the outstanding mortgage balance, without the borrowers’ consent.

This resulted in an increased mortgage instalment, so that, in effect, the customers were paying off the arrears but were not aware of this, nor aware of how much was being paid to address the arrears. Significantly, the bank continued to proceed with legal action to seek possession of the properties and sought additional payments towards the arrears in order to prevent possession.  This meant that, although the arrears had been added to the balance of the mortgage, the bank was still using these arrears as justification to seek possession of the property.

The Chancery Master was highly critical of this practice, stating that he would "...certainly not regard this as fair accounting".  Bank of Scotland went on to appeal the judgment, but later withdrew it. 

Impact identified by the Financial Conduct Authority

The FCA’s work indicates that the financial impact on the majority of affected customers may have been relatively small with estimated compensation likely to be in the low hundreds of pounds per individual. 

It has not been possible for the FCA to determine the number of customers affected by this issue across the industry. However, through its work with an industry working group (which represents around 66% of the market share based on outstanding mortgage balances) the FCA has identified approximately 750,000 affected UK customers. Housing Rights will be responding to the constultation announced and will be advocating that any level of compensation is proportionate to the impact on borrowers. 

Due to the Bank of England base rate change in August 2016 this number may now be greater as the rate change may have led to further recalculation of some customers’ mortgage payments. 

Speaking about the FCA announcement Chris McGrath, Solicitor with Housing Rights commented; 

“We welcome today’s announcement from the FCA. We want to see an end to this practice in the mortgage industry. It is important that lenders can be held to account regarding practices that lack transparency and can lead to harm.  Housing Rights hope that any award of compensation to those affected is proportionate to the negative impact that this would have on already distressed families.” 

Getting help with mortgage debt

Homeowners from Northern Ireland who have fallen behind on their mortgage payments can get free advice and representation through our Mortgage Debt Advice Service. Call us on 028 9024 5640 or 0300 323 0310 between 09.30 and 17.00 Mondays, Wednesdays and Fridays or between 09.30 and 20.00 Tuesdays and Thursdays.

Homeowners from the rest of the UK who have fallen behind on their mortgage payments should contact Shelter.