Nearly half a million borrowers are in line for an average windfall of about £300 each after a raft of lenders agreed to repay more than £149 million in interest and charges following paperwork blunders.
The Office of Fair Trading (OFT) said 17 banks and building societies would compensate around 497,000 customers after admitting documents relating to store cards, credit cards, loans and hire purchase agreements failed to comply with the Consumer Credit Act (CCA).
Under the rules, lenders are not entitled to interest or arrears fees during the period that their statements do not comply with the act.
The payouts, announced yesterday, follow similar errors made by Barclays, Northern Rock and the Co-operative Bank, with more than £370m already forked out in redress.
The latest round of compensation comes after the OFT wrote to 50 banks and building societies in November in light of the issues flagged up by Barclays, Northern Rock and the Co-op.
Some of the breaches date back as far as 2008 when new CCA rules came into effect, with lenders failing to provide the required wording or information in statements and arrears notices.
In some cases, they did not provide annual statements within 30 days of it being due, or had failed to inform customers of the amount they were in arrears within 14 days of default.
The 17 lenders – who have not been named – will now contact those affected directly.
David Fisher, senior director for consumer credit at the OFT, said: “These issues were not deliberate misconduct, but the institutions concerned should have ensured they were complying with the law.
“The OFT welcomes the proactive steps taken to return money to customers where it was incorrectly charged.”
Northern Rock had to pay out £270m to more than 150,000 people after its documentation blunder emerged in December 2012, while Barclays said in September that it was repaying interest and charges to as many as 300,000 customers after falling foul of the CCA rules, in a move that was expected to cost it around £100m.
Co-op Bank said in October that it had increased its provisions for customer redress, partly to cover “an identified breach of the Consumer Credit Act”.
From 1 April, the OFT will hand over responsibility for overseeing the consumer credit market to the Financial Conduct Authority (FCA).
The change in powers will also see the City watchdog tasked with regulating the payday lending sector, where the OFT last year raised “deep-rooted concerns” that a lack of competition was affecting the price of loans for borrowers.
The FCA, which will be able to impose unlimited fines on borrowers that break its rules, has already proposed a mandatory affordability check for payday lenders’ customers, who could face limits to the number of times they roll over their short-term loans.