Mortgages review urged after Bank of Scotland's practice is blasted
An urgent review of mortgage lending practices has been demanded after a Belfast judge lambasted the Bank of Scotland for effectively double-billing borrowers.
Three householders were brought to court by the bank when they fell into mortgage arrears, but the High Court in Belfast accused the lender of "having its cake and eating it".
The bank's practice of restructuring and increasing monthly instalments plunged borrowers into depression, the judge, Master Ellison, said.
"There may not be any fraud involved, but I would certainly not regard this as fair accounting," he added.
A housing charity which supported three defendants – a sole householder and two couples – said they had suffered stress and even depression as a result of their dealings with the bank.
The court ruling focused upon the way the bank added arrears to original mortgage borrowing – a regular practice known as capitalisation, which increases borrowers' monthly repayments.
A solicitor for the Housing Rights Service said the handling of accounts by the bank created "a mist of incomprehension, confusion and self-contradiction".
Christopher McGrath said the bank's practice "unfettered would undoubtedly have resulted in many borrowers unnecessarily losing their home".
He said Bank of Scotland's actions were in conflict with the requirements of the Financial Conduct Authority and "prevented borrowers from making payment proposals to the court to repay their arrears".
The bank has since promised to review its policy following the hearing.
Customers of the Bank of Scotland in Northern Ireland have their mortgages with either the Halifax or Lloyds TSB.
A Lloyds Banking Group statement said it was currently considering the court's judgment and once it has reviewed the findings, "we will respond accordingly".
The statement added that "repossession is always the last resort" and said the bank "worked hard to ensure that we are providing customers facing financial difficulty with the right support to help ease their circumstances and ultimately help to resolve the situation".
The judge who heard the Belfast case said "to the extent at least of the double-billing, it is unconscionable".
He took the view that mortgages should no longer be regarded as in arrears once capitalisation had taken place.
Master Ellison added: "It is also impossible to know how many defaulting borrowers were faithfully or unsuccessfully trying to pay an amount each month in addition to the monthly instalment not knowing that they need not do so, that all they had to do is to keep paying the consolidated monthly instalments."
Ulster Unionist business spokesman Mark Cosgrove has called for an urgent review and for customers overcharged to be paid compensation.
"It should also review its other operations to ensure that no other practices like this are occurring. It is vital our lending institutions act in a responsible and professional manner – which Bank of Scotland failed to do in this instance."
The Housing Rights Service challenge arose after it noticed unexplained increases in Bank of Scotland customers' mortgage payments despite there being no rise in interest rates. The bank had added the customers' mortgage arrears to the outstanding mortgage balance without consent, hiking up their payments. It meant customers were paying off their arrears but were not aware of this.