HSBC has agreed to stump up £4 million to pay back customers subjected to “unreasonable” debt collection practices following a regulatory probe.
The Financial Conduct Authority (FCA) said that the bank has voluntarily agreed to set up a redress scheme for customers who were left out of pocket after paying debt collection charges imposed by HFC Bank and John Lewis Financial Services (JLFS), both part of HSBC.
The regulator said that, between 2003 and 2009, customers of HFC and JLFS who fell into arrears were referred to the firms’ nominated solicitors. However, on referral, the solicitors added 16.4 per cent of the balance to the account as a “debt collection charge”.
This was deemed unreasonable by the Office of Fair Trading in 2010 as it did not reflect the actual costs of collecting the debt.
About 6,700 customers, the majority belonging to HFC, paid the additional charge prior to 2010 and are potentially entitled to redress.
The FCA also identified certain customers where HFC had miscalculated the interest payable on their loan. HSBC has identified about 350 customer accounts that were affected by this error and has committed to repay the overcharged interest back to them.
In total, HSBC will fork out £4m in redress and, for each group of customers, the lender will also pay 8 per cent interest per year.
The FCA added that the banking giant will proactively contact all affected customers with offers of redress.
A spokesman for HSBC said: “This is a historical issue, dating back to the period between 2003 and 2009.
“We have revisited the debt collection charge and as a result a small number of HFC and JLFS customers may be due a refund. We will be directly contacting these customers shortly.”