The Fos confirmed its final decision, finding that Mortgage Agency Services No.5, part of the Co-operative Banking group, treated customers unfairly when it increased their standard variable rate from 2.99 to 5.75 per cent from 2009 to 2012.
While the Fos gave its opinion on the case recently, this was not the first time it has looked at the case, having previously examined it back in 2014.
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A campaigner close to the case, who did not want to be named, said this had led to those involved suffering for a longer period of time than was necessary.
In response, a spokesperson for the Fos said: “A mortgage is likely to be the most significant loan a home buyer is ever going to acquire, which is why it’s so important they are treated with transparency and fairness.
“It’s crucial that consumers are able to understand what their mortgage means for their finances, and how interest rates could change.
“These specific cases are complex and have been subject to significant legal challenge by MAS5.
“We are pleased that we can now resolve these complaints and, where we’re satisfied customers were charged interest unfairly, consumers can obtain redress.
“If people don’t feel they’ve been treated fairly by their mortgage provider, they should contact our free, independent service and we’ll see if we can help.”
The case
The details of the case were explained by the All-Party Parliamentary Group on Mortgage Prisoners, which said that MAS5 increased the SVR four times over the period 2009 to 2012.
The bank claimed these increases were “necessary” rises to reflect changes in the cost of funds it was using to fund its mortgage lending business.
However, the Fos found that “the evidence doesn’t show that there were changes in the overall costs MAS5 was liable itself to pay for the funds that it used”.
The Fos also reported “as a result, the changes to the SVR MAS5 made between 2009 and 2012 – which collectively added 2.79 per cent to the SVR – were not made for reasons permitted by the contract”.
The Fos’s conclusion was that “the evidence shows that MAS5’s cost of funding did not increase”.
As a result, the APPG’s perspective was that MAS5 and the Co-operative Banking Group – which bought the closed book of MAS5 business after the financial crisis – had misled customers.
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As an example of this, the group pointed to a letter sent by MAS5 in February 2011 which said that the SVR increase was “a direct reflection of the increased costs of funding your mortgage loan.”
Additionally, in April 2012, the letter said that the SVR increase had been made after “careful consideration” and that the “rate we are charged for funding your mortgage has increased considerably”.
Given these “serious misrepresentations and breaches of contact”, the APPG is calling for the FCA to investigate the conduct of MAS5, the Co-operative Bank and its senior executives.
Additionally, the APPG is calling on the Co-operative Bank to address the issue by, among other actions, paying full redress to the customers who have overpaid.
APPG on Mortgage Prisoners co-chair, Seema Malhorta MP, said: “It is disgraceful that MAS5 and Co-operative Banking Group customers have been mistreated for more than 10 years.
“People have suffered mental health issues, attempted suicide and lost their homes – all of this could and should have been prevented.
“Now that the Co-operative Banking Group has been shown to have treated customers unfairly by increasing the Standard Variable Rate, it must start living up to its ethical values.”
Co-operative’s response
In response to the Fos ruling, a spokesperson for the Co-operative bank stated: “The Bank has received a final decision from the Fos on two long-standing customer complaint cases that refer to historic SVR changes made to some of our MAS5 mortgages over a decade ago.
“MAS5 is a former Britannia Building Society subsidiary that became a Bank subsidiary after the merger between Britannia Building Society and the Bank in 2009.
“The Bank believes that the historic MAS5 SVR changes were all made in accordance with the terms and conditions of the mortgage contracts and reflected the financial, economic and market conditions at the time.
“As such, we are disappointed that, in partially upholding the complaints, the Fos has come to a different conclusion.
“The Bank is now working through the details of the final Fos decision and will endeavour to progress this as quickly as possible to determine next steps.”
The spokesperson also said: “We remain committed to providing our customers with the support and appropriate forbearance measures they need based on their individual circumstances.
“We have proactively sought ways to assist customers that could be considered as mortgage prisoners, including the option to re-mortgage to a Co-operative Bank mortgage, subject to eligibility, and in line with our commitments as a responsible lender.”
FCA and Fos
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APPG’s criticism was not confined to the Co-operative Bank however, as it additionally raised “serious questions” about how the Financial Conduct Authority and the Fos have responded to this case.
Malhotra commented: “FCA senior executives have failed consumers by not taking effective action when this issue was highlighted to them in 2019 and 2020.
“Nikhil Rathi [the FCA chief executive] needs to take a different approach and ensure that all customers receive full refunds for all of the overpaid interest due to the 2.76 per cent unfair interest rate increases.
“We need an independent review into what went wrong at the FCA and the Fos.
“It is clear that both organisations missed opportunities to uncover and investigate these unfair SVR increases and the Fos should immediately review all of the previous cases involving MAS5 where it had wrongly rejected the customers’ complaints.”
Mortgage Prisoners Group
This call for review was echoed by the UK Mortgage Prisoners Group, which has called on the FCA to now address the unfairness further by considering earlier rate rises and ordering MAS5 to pay full redress to all affected customers.
UK Mortgage Prisoners Group lead campaigner, Rachel Neale, said: “We believe Fos and the FCA know the damage and detriment caused to Borrowers held on high SVRs in closed books and SPVs.
“They must act now to prevent further harm to our members who have been profiteered from since the Financial Crash in 2008.”
Neale added that the group want to see regulatory reform so that no residential mortgage customer can be sold to a non lending entity which does not offer products all borrowers have an expectation to be able to access during the lifetime of their mortgage
The group is also calling for a regulatory amendment to residential mortgage terms and conditions to prevent borrowers from being trapped on reversionary SVRs at the end of any fixed rate period.
In response, a spokesperson for the FCA said: “Parliament has set up the Financial Ombudsman Service to be operationally independent, so that they are able to consider decisions on individual cases.
“We welcome the fact that they have now issued these decisions. We expect firms to comply with our complaints rules once decisions are issued.”
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Source: https://t-tees.com
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