Co-Operative Bank has been accused of “treat[ing] customers unfairly” by MPs, who argued the bank’s rate rises through one of its agency subsidiaries between 2009 and 2012 “were not in line” with the terms and conditions of customers’ mortgages.
In a letter sent to the Co-Operative Bank yesterday (February 24), the All-Party Parliamentary Group (APPG) on Mortgage Prisoners said the bank “is still relying” on “unfair rate increases” to charge some customers “a very high” standard variable rate.
The criticism related to Mortgage Agency Services Number Five Limited (MAS5), a subsidiary of Co-Operative Bank.
“We have also received very disturbing reports of how MAS5 and the Co-operative Bank are treating vulnerable customers,” said the APPG, which is co-chaired by Labour MP Seema Malhotra and Liberal Democrat politician Lord Sharkey.
“Instead of supporting one of your customers who has given years of service to the NHS, you are threatening to repossess his home.”
The APPG asked the Co-Operative Bank to “immediately halt” all threats of repossession to MAS5 customers paying the standard variable rate, which rose from 2.99 per cent to 5.75 per cent between June 2009 and May 2012.
It also requested the bank cut these rate by 2.76 percentage points “to reflect the impact of the unfair interest rate increases”.
A number of other cases relating to these rate rises are currently being reviewed by the Financial Ombudsman Service, according to the APPG, which suggested the Fos should address them with a sense of urgency due to the alleged “pressure” being put on customers by the bank.
“Even though there are outstanding complaints being assessed by Fos, MAS5 has been threatening to repossess homes and has put pressure on customers to accept agreements for ‘voluntary sales’ which these customers view as akin to a repossession,” the MPs said in an additional letter to the Fos. FTAdviser has approached the Fos for comment.
A spokesperson for the Co-Operative Bank said yesterday: “Today we received a letter from the APPG on mortgage prisoners and we intend to review this and respond in due course to the APPG on the matters they have raised.”
The complaints
Back in 2014, a customer complained to the Financial Ombudsman Service over their buy-to-let mortgage which had been taken over by MAS5 after 2008. A number of interest rate increases had been applied since then.
The Co-Operative-owned agency said at the time that, under the mortgage contract, it was permitted to increase the rate, and that the increases were fair and reflected its costs in funding the mortgage.
According to the Fos, the agency was not obliged to follow the Bank of England rate, and the Fos said it was satisfied with the bank’s reasoning for doing so, having cited confidential documents suggesting the bank’s funding costs had increased.
The APPG has now requested the Co-Operative Bank share all of the information it has submitted to Fos regarding the agency’s funding costs.
Another complaint relating to interest rate rises by MAS5 to the Fos, however, was upheld. The case cited by the APPG saw the Fos conclude it was “not satisfied” MAS5 had increased the standard variable rate in line with the terms and conditions of a couple’s mortgage. “As a result, I think Mr and Mrs X have been treated unfairly,” it said.
The Fos said MAS5 should assume the four increases in the standard variable rate did not take place and pay redress on that basis.
The agency has seen other complaints upheld by the Fos relating to interest rates. Complainants in one case were hit with a 1 per cent interest rate margin when they let their property. The Fos found the margin unfair, and told MAS5 to remove it and refund the complainants.
In another case, MAS5 was found to have given incorrect information regarding interest rates on two occasions to a customer, and so was ordered by the Fos to pay £200 to the customers.
Regulatory 'failure'
The APPG said it was “concerned” the customers might have signed confidentiality agreements which prohibited them from sharing their concerns with the Financial Conduct Authority.
“We are especially concerned that when businesses receive a Fos decision which they do not want to apply in other cases they put pressure on customers to withdraw their complaint, accept an agreement and sign a confidentiality clause,” it said.
In a third letter to the FCA, the APPG asked the regulator to open an investigation into the increases in the standard variable rates by MAS5 during the period 2009-12, looking at whether senior executives within MAS5 and the Co-Operative Bank had “misled FCA officials”.
It also suggested the FCA should undertake a 'lessons learned' exercise into why it allegedly “failed” to uncover or properly investigate the misconduct within MAS5 when this issue was reported to them over the period 2019-21. FTAdviser has approached the FCA for comment.
In July, the Treasury said it would look for “practical and proportionate solutions” for those trapped in a mortgage with an inactive firm once the FCA publishes its review.
The review found 47,000 customers were still mortgage prisoners, and that 34,000 were in payment shortfall.
The FCA said the government and industry would use these figures to consider if there are further practical and proportionate solutions for mortgage prisoners.
ruby.hinchliffe@ft.com
