Lloyds to repay £283m to 590,000 mortgage arrears customers

Lloyds Banking Group has announced that it will reimburse 590,000 customers who fell into mortgage arrears between 2009 and 2016.

Related topics:  Mortgages
Rozi Jones
27th July 2017
Lloyds
"A compensation scheme... shows that unfortunately poor treatment of banking customers was not restricted to the period before the financial crisis."

Following engagement with the FCA, Lloyds acknowledged that when customers fell into arrears, they did not always do enough to understand customers’ circumstances to be confident that their arrears payment plans were affordable and sustainable.

As a result, Lloyds has committed to refund all fees charged to customers for arrears management and broken payment arrangements from 1 January 2009 to January 2016. For those mortgage customers who entered its litigation process during this period, this will include any litigation fees that were applied unfairly.

Lloyds will also offer payments for potential distress and inconvenience, and consequential loss which customers may have experienced as a result of not being able to keep up with unsustainable repayment plans.

Lloyds estimates that approximately 590,000 customers will receive redress payments, totalling around £283 million.

Jonathan Davidson, Executive Director of Supervision- Retail and Authorisations at the FCA, said: “Ensuring fair treatment of customers, especially those in financial difficulties or who are vulnerable, is a key priority for the FCA. We continue to engage with Lloyds as it works to improve the way it treats customers in arrears.”

In its half year results, published today, Lloyds announced that it has provided an additional £155 million in H1 (bringing the total provision to £552 million), "for the costs of identifying and rectifying certain arrears management fees and activities".

The bank has chosen not to increase the £100 million provision made in the first quarter for compensating victims of the HBOS Reading fraud.

Last month, Lloyds announced that it had paid £485,000 to 13 customers who were victims of HBOS fraud, and is now offering all 67 victims a £35,000 payment to cover bills and expenses.

Lloyds has so far identified 55 of the 67 people it so far believes to have been affected, but is unable to track down the other 12. However it is thought that the Bank plans to compensate those individuals if they come forward.

Aside from the interim compensation, Lloyds announced that it had made seven offers with a further eight in the “final stages” of assessment.

The Bank admitted that it has now missed its self-imposed June deadline for compensating victims, after setting aside £100m in April as part of a compensation scheme.

In its H1 results, Lloyds has reported an 8% rise in underlying profits in the first half of 2017 to £4,492 million.

Statutory profit before tax (after one-off items) rose 4% to £2,544 million, despite a £1,050 million charge for PPI and £540 million of other misconduct charges, including the costs of the redress scheme for mortgage customers who fell into arrears.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, commented: "It’s a sign of Lloyds’ strength that it can shrug off £1.6 billion of misconduct charges to post a strong rise in profits. Growing revenues at the bank were driven by a good showing from its commercial banking division, and with costs heading downwards, that spells good news for profits, dividends and shareholders.

"Lloyds has two more years of the PPI storm to weather, after which a significant headwind to profitability will have dissipated. The board will be hoping that the provisions it has now made will see the bank through to the end of the claims period in 2019, while prudently expecting that there will still be some incremental charges along the way.

"There are other misconduct costs at play too, in particular a compensation scheme for customers who fell into mortgage arrears between 2009 and 2016, which shows that unfortunately poor treatment of banking customers was not restricted to the period before the financial crisis. However these costs are limited in scope by comparison to PPI claims, where the light at the end of the tunnel is now in sight.

"Loan impairments at the bank remain low, which suggests that the current inflationary squeeze on consumers has not yet manifested itself in borrowers defaulting on their debts. However the real litmus test for consumer loans will be when interest rates rise, because at current levels there is little pressure on affordability.

"Overall this is a strong set of numbers from Lloyds, blighted, but not overshadowed, by misconduct costs. The bank’s fortunes are heavily reliant on the UK economy, which still hangs in the balance as we leave the European Union, though even if we are entering a period of economic weakness, Lloyds is at least doing so from a position of strength."

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