Posted: 2nd December 2013

The Financial Conduct Authority’s (FCA) has fined Clydesdale Bank £8.9m following what appeared to be a catalogue of errors in the way it treated 42,500 mortgage customers.

The issue stemmed from a change Clydesdale implemented to its IT system in January 2005; this affected the interest calculation for impacted customers. In essence this created an underfunding issue for customers which mainly impacted those on a capital repayment mortgage. This underfunding issue was not picked up by the bank until over four years later.

Clydesdale’s solution

The agreed solution was to undertake a rolling customer contact programme to notify customers of the issue to communicate that they would increase monthly payments or be seeking one off payments in order to rectify this. Clydesdale set up a dedicated contact centre to carry out the exercise and to deal with any customer concerns or questions. This contact exercise commenced in March 2010 and finished in October.

Customer interest?

Along the way a number of decisions were made that did not seem to balance the customer’s interests against those of the bank. These included:

Putting the onus on the customers to solve the situation rather than accepting that Clydesdale was the party at fault
Communicating with customers in a way that was not fair, clear and misleading, both in writing through the customer contact letter and verbally when customers contacted them
Not placing sufficient weight on the publicised approach that the FOS takes to mortgage underfunding issues
Not taking into account FOS adjudications which related to affected customers who had referred their complaints to FOS.

In this case, Clydesdale now has to undertake a further costly customer contact exercise and ensure that it delivers a fair outcome for the customers that have been impacted here. There are a number of lessons here for firms across the market. The customer should and can be at the heart of decision making and your business model. If commercial decisions override the customer’s fair treatment the FCA will be firm and swift in its action.

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