Clydesdale Bank fined £8.9m over mortgage system problem

The Financial Conduct Authority (FCA) has fined Clydesdale Bank £8.9 million for failing to make customers fully aware of their rights after a software glitch resulted in the bank miscalculating repayments on thousands of mortgages.

The bank previously said that the mortgage miscalculations were due to an error that occurred following a software update. However, it was because Clydesdale put recouping repayments above the interests of its customers that resulted in the fine.

Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “For most people mortgage payments are their biggest monthly outgoing and we all budget on the assumption that the information our mortgage lender gives us about what we need to pay is correct.

“There Clydesdale failed in that basic duty and, when it discovered the problem, sought to pass all the consequences on to its customers - expecting them to find the money to remedy mistakes which were entirely of Clydesdale’s making.”

Clydesdale, which is owned by National Australia Bank, implemented a new repayment system to calculate its variable rate customers’ mortgage repayments on 17 January 2005.

When interest rates changed, the system used a formula to immediately recalculate a customer’s mortgage repayments. However, the formula used was flawed and led to repayments on over 42,500 mortgages being miscalculated.

The flawed formula meant that the system calculated the new repayment solely by adjusting the previous month’s interest in accordance with the interest rate change, without also taking into account factors such as the different number of days in the month preceding the month in which the change occurred.

The calculation error was not spotted until April 2009, when a group within Clydesdale’s technology department discovered it while investigating a series of unrelated issues.

However, it was not until July 2010 that the bank publicly admitted to the mortgage miscalculations.

In a statement at the time, the bank said it had miscalculated around 18,000 repayments.

A spokesperson for the bank declined to name the software involved.

"We made changes to our systems to allow for greater flexibility [of payments] for customers. This created the inaccuracy in the calculation,” the spokesperson said.

McDermott said that firms need to put the interests of customers at the heart of their business if trust is to be restored 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,” she said.

Earlier this month, the FCA fined AXA Wealth Services £1.8 million for giving customers poor investment advice, leading to customers making unsuitable investments.

AXA sold around 37,000 investment products to 26,000 retail customers through advisors based in branches of Clydesdale Bank, Yorkshire Bank and West Bromwich Building Society, between 15 September 2010 and 30 April 2012.


Copyright © 2013 IDG Communications, Inc.

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