City regulator acts over catalogue of errors at the bank, which paid more than £20m in goodwill payments to wrong customers
The Bank of Scotland has been fined £4m by the City regulator after a series of blunders meant it paid more than £20m in compensation to the wrong customers.
The catalogue of errors stems back to February 2011, when the Bank of Scotland was compelled to make goodwill payments to thousands of Halifax customers who had a standard variable rate (SVR) mortgage with the bank. The bank raised the cap on the mortgage, which meant borrowers could start paying more, but had not given those borrowers the required notice.
Working with the FSA, the bank, which holds the banking licence that covers both Bank of Scotland and Halifax customers, implemented a repayment programme to provide redress to the 300,000 affected customers. However, a short time later, while monitoring a consumer forum website, the FSA found a number of customers complaining that they had been wrongly excluded from the programme and had not received goodwill payments. The bank should have identified a further 160,000 Halifax and Bank of Scotland mortgageholders who were entitled to the payment.
The error was made even worse when it transpired that the bank had incorrectly contacted 33,700 customers who should never have been included in the programme. It had mistakenly made goodwill payments totalling £20.4m to 22,700 of them.
On announcing the £4.2m it has fined the bank, Tracey McDermott, FSA director of enforcement and financial crime, said: “These mistakes stemmed from the fact that Bank of Scotland had an inadequate mortgage records system, meaning they could not identify which of those 250,000 customers were subject to a cap on their standard variable rate.”
She added: “This breach is particularly serious because the inaccuracies built up over a period of seven years. There was no structure in place to identify errors as they occurred and no checking procedures thereafter.
“In a complicated organisation where several legacy systems exist, firms have to make sure they are synchronised, otherwise it is their customers who suffer.”
The Bank of Scotland said that the 22,700 people who were erroneously awarded a typical payment of £900 each have been allowed to keep the money. It has now paid all its correct existing customers the money they are entitled to but is still trying to trace a number of customers who are entitled to the money but have since left the bank. These are either Halifax or Bank of Scotland customers who had an SVR mortgage with either bank between 2004 and 2008.
The bank said in a statement: “We wrote to existing customers in November 2011, of whom all those entitled to payment have now received it. Bank of Scotland has apologised to customers, co-operated fully with the regulator throughout this process and has agreed to pay a fine of £4.2 million.”
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