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Bank Of Scotland Unfairly Double Billed Mortgage Customers Says Judge

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Bank of Scotland unfairly double billed customers says judge

Bank of Scotland has been unfairly double billing customers who fell behind on their mortgages, a High Court judge in Belfast has ruled.

In a scathing verdict, Master Ellison said the bank's behaviour had been "unconscionable".

He said it had caused borrowers to be "plunged into depression".

The findings could have implications for thousands of Bank of Scotland mortgage holders across the United Kingdom.

The Housing Rights Service which took the case said if the bank's practice had gone unchallenged, many borrowers would have lost their homes.

The bank is a major mortgage lender in Northern Ireland under the Halifax brand, and is ultimately owned by the Lloyds Banking Group.

The case focused on the way it added arrears to the original mortgage borrowing.

That is a standard practice for tackling arrears and is known as capitalisation.

http://www.bbc.co.uk/news/uk-northern-ireland-28842534

I managed to find the judicial decision on the NI Courts and Tribunal Service website. A lengthy but interesting read:

https://www.courtsni.gov.uk/en-GB/Judicial%20Decisions/PublishedByYear/Documents/2014/%5B2014%5D%20NIMaster%2011/j_j_2014NIMaster11Final.htm

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Very interesting indeed. On the NI site from this morning - we need to learn to share (Shotoflight)This was a test case and by no means the only cases that have come up were BOS/ Halifax or BM Solutions have charged like this on arrears. Consumer Action Group site has examples also. Bit of discussion from Housing Rights (NI equivalent of Shelter) who brought the case here.

http://www.housingrights.org.uk/news/bank-scotland-held-account

All very well expecting people to pay back what they owe but to expect them to pay more than they owe for no other reason than bank profit can not be right.

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My understanding (and I may have read it wrong) of the case isn't that this was "double charging", nor was it excessive profit taking by the bank.

As I see it, these customers had got into arrears, often significantly so. If the bank needed to recalculate the monthly payments for some reason (e.g. an interest rate change), then the bank would recalculated the payments, so that the arrears would be included in the monthly payments, rather than letting the arrears run.

The judge said that the bank EITHER needs to add the arrears to the monthly payment, OR chase the customer for the arrears, but the bank cannot do both (even if the arrears are being reduced by the monthly payments).

Edited by ChumpusRex

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My understanding (and I may have read it wrong) of the case isn't that this was "double charging", nor was it excessive profit taking by the bank.

As I see it, these customers had got into arrears, often significantly so. If the bank needed to recalculate the monthly payments for some reason (e.g. an interest rate change), then the bank would recalculated the payments, so that the arrears would be included in the monthly payments, rather than letting the arrears run.

The arrears were added to the loan and the new payments calculated to show the additional borrowing. This meant the mortgage was no longer in arrears as long as the newly calculated monthly payments were kept up to date. BOS continued to treat the customer as if they were in arrears, extra charges, debt collection and repossession proceedings.

An example of Halifax charges.

Arrears management fee We may charge you an arrears management fee each time we attempt to contact you.£36

Arrears management fees reflect the extra work we have to do for customers in arrears and what that costs us. £35

Litigation management fee If we instruct solicitors to collect arrears or seek possession. £100

Repossession fee If we take the property back into our possession and look after the sale that follows. £350

You must also meet other additional costs we incur. These costs include (but are not limited to) some or all of the following work, which may be done by third parties on our behalf, for example:

  • Field Agent costs - a Field Agent is a third party who will make a visit to the property to discuss your financial circumstances on behalf of the bank.
  • Solicitor's costs - individual to each case.
  • Court fees.

The additional fees can run into thousands and then interest is added on.

Edited by little fish

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Thanks for posting this FreeTrader. Interesting stuff. From the judicial decision, (the emphasis in in the original):

The provisions of the mortgage contract upon which the plaintiff relies in these matters include discretion to capitalise because of underpayments, but that discretion is, as it were, dressed up as a duty by reason of the insertion of the word “needs”. There is no “need” to unilaterally capitalise arrears of instalments. Above all there is no “need” to unilaterally capitalise arrears and at the same time maintain an artificial and anomalous, and indeed in a very real sense vexatious, double-billing by way of an “arrears balance”. The plaintiff is in effect holding a borrower in terrorem by threatening or bringing possession proceedings on account of an erroneous and significant fictional arrears balance.

I think that the labelling of the practice as "double-billing" is potentially misleading.

It seems the meat of it is a mismatch between the haphazard and clownish way the mortgage banks deal/dealt with forbearance and the fact that a mortgage is a legal contract embedded in a significant amount of statute law and case law and involving the courts granting orders for possession and the like and is therefore not a good context for bank credit officers to start 'winging it'.

It seems the meat of the problem is that once the people who are supposed to be paying the mortgage stop paying the mortgage, the gold old boys and girls at HBOS/Lloyds start opening any number of ledger accounts for this and that according to their whim (the mortgage balance, the arrears balance, charges etc).

Lloyds/HBOS then want to have their cake and eat it too.

The bank wants to extend and pretend by rolling the arrears into the loan (but without adjusting the ledger accounts, hence as far as they are concerned there is still a record of past arrears).

Hence on the one hand they want to act as if they have a performing loan.

They also want, presumably on the basis of the existence of a ledger account holding some arrears, for the courts to accept that if they have a suspended possession order (granted on the basis of the arrears) then rolling of the arrears into the loan principal doesn't really discharge the arrears so they can still use possession order whenever they see fit.

Hence on the other hand they want to act as if they have a loan that is not performing which they can close up whenever it suits them, regardless of how the 'new loan' (of dubious legal character) has performed since the arrears were added to whatever was previously outstanding.

Bonkers.

I'm a bit surprised that they let it get to court. Other parts of the judgement indicate that the plaintiffs (the banks) didn't exactly cover themselves with glory when it came to answering the judge's questions in a timely and complete manner. Does rather convince you that the mortgage banks are utter clowns. IMO this is what happens when a government reluctant to see large numbers of repossessions leans on the banks to not repossess and instead invites the banks to make it up as they go along.

Edited by bland unsight

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As I see it, this is the bank making a (relatively) innocent mistake on a highly technical point of law which would normally be of relatively little consequence to either the bank or customer.

Although, the banks continued to apply fees to the accounts due to arrears, there is no suggestion that these fees were any higher than they would have been if the arrears had been treated as arrears (as a separate balance) rather than capitalised into the mortgage payment. Similarly, there is no suggestion that proceedings for possession counted arrears which had already been repaid as part of the increased payments.

The mistake was purely the bank not realising that if arrears are added to the monthly payment, then the arrears are wiped out. (To be honest, I wouldn't have realised that either, nor would, I suspect most people), and the consequence of that which was that customers were being asked to pay arrears while not being told they were paying their arrears.

The bank was clearly wrong to handle the accounts as they did, but this appears to be carelessness. Instead, it appears that the borrowers have hit the jackpot and won a bailout (not necessarily unreasonable, given the bank's mistake)

Edited by ChumpusRex

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The double billing comes from the borrower being charged interest on the main loan which has had the arrears capitalised into it and the borrower is now paying as the principle account. Those same arrears were also being used to charge the additional arrears charges. The Halifax example above of £36 for every attempted contact can run into hundreds of pounds in a day if the borrower does not or can not answer the phone.

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Yes. The key point (and rather unexpected one) was that by incorporating the arrears into the monthly payment, the bank had unwittingly deleted the arrears (but continued attempting to collect the arrears)

Edited by ChumpusRex

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See Cattles Plc for the consequences of sprucing up nonperforming loans.

Depending on the level of arrears and original LTV, we are potentially back to the days of >100% LTV lending with an extend and pretend recapitalisation. Hell, you could rewrite it every month until the final payment.

Question is, how might banks' approach change? Will they be more inclined to reposses or recap the loans?

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Just as a sidebar, this kind of shady practice works the other way too.

I had a mortgage with Barclays and at first they wouldn't let me make electronic overpayments as they said they didn't have the capacity to process them :wacko: I actually believe that. (this was some years ago, mind). Similarly, no online access to balances, etc.

Then later on when I checked the balance of the mortgage and did some caluclations with my own mortgage spreadsheet, I worked out that I was paying about 60 quid a month too much.

Really pissed off I phoned them up and a very nice lady told me that although the BoE had reduced the base rate, all the customers on trackers were being kept paying close to their original payment to 'give them a buffer' in the future. :blink:

No letter to let the customers know, no explanation.

Although this is minor it reinforced for me the need for people to check and double check every dealing with their bank. It may be that they make it up on the back of an envelope as they go along.

I am still not sure WHY I need to overpay the mortgage without explicitely instructing the bank......

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