Clydesdale Bank fined £8.9m over mortgage blunder

Clydesdale Bank: 8.9 million pound fine for unfair treatment of mrotgage customers. Picture: PA

The City regulator fined the bank £8.9 million after it found 22,000 homebuyers had faced unexpected increases in their monthly mortgage repayments.

The miscalculation, discovered in 2009, was corrected the following year, but customers were faced with shortfalls in their mortgages, and about 22,000 of them will receive pay-outs of between £20 and £18,000. The average will be £970.

Letters sent to customers suggested they had no alternative but to bring their repayments up to date, but the Financial Conduct Authority (FCA) said many “could have rejected demands to repay the shortfalls caused by Clydesdale’s calculation errors”.

Mr Thorburn described yesterday’s FCA verdict as “a very disappointing day to say the least”, adding that it was the “worst issue I have faced”.

He said he was determined to put right what had gone wrong and to compensate those affected as quickly as possible.

“This should not have happened,” he said. “We are sorry as an organisation and I am sorry personally.”

Asked if the blunder would damage the bank’s reputation, he replied: “Absolutely. There is no question.”

The issue involved some mortgage payments being incorrectly recalculated whenever interest rates changed. Although the error had existed since 2005, it had little impact on customers before 2008, as interest rates moved up and down.

When interest rates moved steadily downwards from 2008, the error began to make a bigger impact. For some customers, this meant their payments were less than the minimum required to repay their mortgage over the agreed term.

The bank will immediately compensate 14,000 customers who still have accounts at the bank. A further 8,000 who no longer have accounts need to be traced, as do 20,000 who may still be entitled to a claim against the bank for being in some way disadvantaged by the error.

The shortfall in mortgages amounted to £21.2m, an average of £970. The total cost of providing customer redress, including the fine, is expected to be about £42m, of which the vast majority had already been provided for by the end of June. Customers affected are spread across the UK.

Mr Thorburn, who has worked at the bank for 20 years, said: “I am very sorry that this wasn’t handled as it should have been. We should have made it clear at the time that this was entirely our fault and that some customers may be entitled to compensation.

“Our priority is to fix this for customers as quickly as possible and they will each receive a letter explaining how we will make this right for them.

“We got this wrong and we are trying to put it right in a way that minimises disruption to customers. It is as much as I can do. I wish I could turn the clock back.”

He said no individual member of staff had been singled out or reprimanded for the error.

“It was a collective decision taken by the management at the time,” he said. “It was the wrong decision and we have learned from that mistake.”

Asked if it was the biggest crisis during his time with the bank, he said: “It certainly feels like it right now. This is the worst issue I have had to deal with.”

Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “Firms must put the interests of customers at the heart of their business if we are to restore trust and confidence in financial services.

“Clydesdale is today paying the price for its decision to put its bottom line ahead of the need to ensure its customers were treated fairly.”

The bank, which faced a £22m hit for mis-selling payment protection insurance and was caught up in the interest rate swap scandal, has shed 1,400 jobs in recent months. Last year, it recorded its first ever loss.