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APPG Calls On Co-op Bank to Pay Redress to Mortgage Customers

APPG Calls On Co-op Bank to Pay Redress to Mortgage Customers and For An Independent Review Into Actions of FCA and FOS


The FOS has confirmed its final decision that Mortgage Agency Services No.5 (MAS5) which is part of the Co-operative Banking group has treated customers unfairly when it increased their Standard Variable Rate from 2.99% to 5.75% over the period 2009 to 2012. Many of these customers will have been mortgage prisoners.


The All-Party Parliamentary Group (APPG) on Mortgage Prisoners is calling on the Co-operative Bank to pay full redress to the customers who have overpaid due to all of these unfair interest rate increases.


MAS5 increased the SVR four times over the period 2009 to 2012. It claims that each of these rises was necessary to reflect changes in the cost of funds it used in funding its mortgage lending business.


The FOS has 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” and “As a result the changes to the SVR MAS5 made between 2009 and 2012 – which collectively added 2.76% to the SVR – were not made for reasons permitted by the contract”


The FOS conclusion was that “The evidence shows that MAS5’s cost of funding did not increase”


In the view of the APPG, this shows that MAS5 and the Co-operative Banking Group misled customers. For example, in February 2011 the letter sent by MAS5 said that the SVR increase was “a direct reflection of the increased costs of funding your mortgage loan”. 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 contract, the APPG is calling for the FCA to investigate the conduct of MAS5, the Co-operative Bank and its senior executives.


In June 2020, in a previous case, a FOS investigator had found that MAS5 had treated customers unfairly when it increased their SVR over the period 2009 to 2012. Instead of admitting their breaches of contract, MAS5 and the Co-operative Bank required this customer to sign a confidentiality agreement as part of settling the complaint.


The Co-operative Bank and MAS5 had brought a Judicial Review to try and prevent the FOS from examining the fairness of the SVR increases in other cases. The Judgment published on 27th July 2022 dismissed the application.


The APPG has also received very disturbing reports about how MAS5 and the Co-operative Bank have been treating vulnerable customers and these have been passed to the FCA for investigation. It is clear that the mistreatment of customers by MAS5 and the Co-operative Bank have led to constant financial struggle for some customers. Customers have suffered serious financial hardship, mental breakdowns and attempted suicide. At least one family has lost their home after MAS5 and the Co-operative Bank threatened repossession.


FCA and FOS failures


The APPG is also raising serious questions about how the FCA and the FOS have responded to this case. These issues were first raised with the FCA Director of Supervision in 2019 and were also raised in a meeting the APPG held with FCA senior officials in January 2020. The FCA were aware of the 2020 FOS decision and the attempts of the Co-operative Bank to have the customer sign a confidentiality agreement but did not take any effective action to help customers or to hold the Co-operative Bank and its senior executives to account. The APPG views these as serious failings which have caused additional harm to customers and contributed to some losing their homes.


The FOS also investigated MAS5 in 2013/14, but at this stage, as there was not anyone representing the customer in this case, the FOS failed to uncover the misrepresentations and breaches of contract. This could have been either due to FOS incompetence in not investigating the issue properly or the Co-operative Bank not providing the full picture to the FOS. Either way, the incompetence and failures at FOS to uncover these unfair SVR increases in 2013/14 has caused over 10 years of misery for MAS5 customers. It is also very concerning and could be indicative of systemic failures within FOS that an independent representative had to become involved to support the customer before the 2018/2019/2020 complaints were investigated properly and as recently as 2019 the FOS was maintaining that the MAS5 customer had “been charged interest in line with her mortgage agreement”. It is also not fair and reasonable that FOS is only requiring part of the unfair interest rate rises to be refunded to customers – meaning that MAS5 and the Co-operative Bank are benefiting from their unfair SVR increases and breaches of contract.


Seema Malhotra MP, Co-Chair of the APPG on Mortgage Prisoners said “The FOS has concluded that the SVR increases by Mortgage Agency Services No.5 (MAS5) Ltd were unfair and not in line with the terms and conditions of the mortgage. These unfair increases have had a devastating impact on customers. Many of these customers have serious health issues or financial problems.


It is disgraceful that MAS5 and Co-operative Banking Group customers have been mistreated for over 10 years and that the bank stopped a customer from discussing the unfair SVR increases by requiring them to sign a confidentiality agreement to settle their complaint in 2020. 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 and pay full refunds to the customers for all of the interest they have overpaid due to the

breaches of contract and the 2.76% unfair interest rate increases.


FCA senior executives have failed consumers by not taking any effective action when this issue was highlighted to them in 2019 and 2020. Nikhil Rathi 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% 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.”


Background

Contact: APPGMortgagePrisoners@gmail.com


Mortgage Agency Services No.5 Ltd acquired mortgage loans from GMAC-RFC prior to the financial crisis. It was part of the Britannia Building Society and became part of the Co-operative Banking Group in August 2009 after the Britannia merged with the Co-operative Bank. Customers of MAS5 were left on the SVR and the firm refused to offer them new deals or fixed rates. The SVR increases took place over the years 2009 to 2012.


MAS5 increased the SVR four times over the period 2009 to 2012. It claims that each of these rises was necessary to reflect changes in the cost of funding.


  • On 1 July 2009 the SVR was increased by 0.75% to 3.74%

  • On 1 October 2009 the SVR was increased by 0.76% to 4.50%

  • On 1 March 2011, the SVR was increased by 0.75% to 5.25%

  • On 1 May 2012, the SVR was increased by 0.50% to 5.75%

The issue was first raised with the FCA in 2019 and was also raised with FCA senior executives during a meeting the APPG held in January 2020.


The complaint which has just reached a final Ombudsman decision was first referred to the FOS on 21st December 2018. It has taken almost 5 years for the FOS to assess the case.


A copy of the Judgment in the Judicial Review can be found here:


In February 2022, the APPG wrote to the Co-Operative Bank, the FCA and the FOS and copies of the letters can be found here:


Possible redress amounts which could be received by consumers


A customer with an interest-only mortgage of £100,000 would receive around £9,000 in redress if they only received 1.25% of the unfair SVR increases for the past 6 years as redress as proposed by the FOS.


A customer with an interest-only mortgage of £100,000 would receive around £20,000 in redress if they received the full 2.76% of the unfair SVR increases for the past 6 years as redress.


A customer with an interest-only mortgage of £100,000 would receive around £55,000 in redress if they received full redress covering all of the unfair SVR increases which had been levied on them between 2009 and 2012 in breach of their mortgage terms and conditions. This would cover the full 2.76% unfair SVR increases from 2012 and slightly lower unfair interest rate increases for the years prior to 2012.


The precise amounts received by different customers will depend on their financial circumstances including the size and the type of mortgage they have or had (repayment or interest-only), the repayments they have made and when they complain or have complained. Any consumers who have been in arrears or subject to repossession action should also request any additional fees to be refunded to them. The FOS may also make an award for distress and inconvenience so customers should explain to FOS the impact which the unfair interest rate increases have had on them. As the FOS is only allowing most consumers to receive refunds for the unfair SVR increases going back 6 years from the date they put in a complaint the sooner a consumer complains the more redress they will receive.


Actions requested by the Co-Chairs of the APPG of the Co-operative Bank, the FCA and the FOS


The Co-operative Bank

  • Pay full redress to MAS5 customers for the overpayment of the 2.76% interest due to all of the unfair interest rate increases.

  • Immediately halt all threats of repossession to MAS5 customers paying the SVR until their complaints have been assessed by the FOS.

  • Cut the rates paid by MAS5 SVR customers by 2.76% to reflect the impact of the unfair interest rate increases.

  • Allow all MAS5 customers to access Co-operative bank fixed rates by using the flexibility allowed in FCA rules to streamline any affordability assessment.

  • Institute an independent investigation headed by the Board’s Values and Ethics Committee into whether any staff within the Co-operative Bank or MAS5 sought to conceal the unfair SVR increases or failed to comply with the bank’s policies on the treatment of vulnerable customers.

  • Explain your policy on imposing confidentiality agreements on customers which prohibit them from sharing details of their complaints with the FCA.


The FCA

  • Open an investigation into the increases in the SVR by MAS5 during the period 2009-2012, including whether senior executives within MAS5 and the Co-operative banking group have misled FCA officials.

  • Order MAS5 to reduce the SVR by 2.76% to reflect the impact of the unfair interest rate increases.

  • Order MAS5 to pay full redress to all customers affected by the overpayment of interest due to the 2.76% unfair interest rate increases using the FCA’s powers under Section 404 of the Financial Services and Markets Act

  • Instruct MAS5 to halt any repossession action against MAS5 customers paying the SVR and to offer forbearance whilst this investigation and the assessment of the FOS complaints are ongoing.

  • Open investigations into the breaches of DISP rules by MAS5 and their treatment of vulnerable customers.

  • Undertake and publish a 'lessons learned' exercise into why FCA officials and board members failed to uncover or properly investigate the unfair SVR increases within MAS5 when this issue was reported to them over the period 2019-2021.

  • Explain why the FCA’s Directors of Supervision failed to take action to help MAS5 customers when these issues were reported to them in 2019 and 2021.

  • Stop firms imposing confidentiality clauses on consumers which prevent them from reporting their concerns to the FCA.


The FOS


  • Recommends to MAS5 that all possession action should cease until these complaints have been assessed.

  • Explain why it believes that MAS5 customers “ought reasonably” to have been aware that MAS5 was misleading them about whether MAS5’s funding costs had increased given that the FOS didn’t have the competence to notice this until prompted by the APPG.

  • Reopen all previously assessed cases involving MAS5 as the new evidence gathered shows that previous FOS investigators and Ombudsmen came to the wrong decision.

  • Report the issues raised by these cases to the FOS/FCA Coordination Committee and ensure that minutes of these meetings are published to aid accountability.

  • Prevent firms from imposing confidentiality agreements on consumers as conditions for settling complaints.

  • Apologise to all MAS5 customers for the failure of the FOS to investigate the 2014 case properly and the misery that this failing caused to these customers.

  • For the FOS Board to order an independent review into the circumstances surrounding these cases and how FOS is assessing complaints about SVRs to see what changes can be made to prevent similar failings and harm to customers.

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