Co-op banking customers who were overcharged mortgage interest for more than a decade are now set to receive compensation payouts.
It comes after a landmark ruling from the Financial Ombudsman Service (FOS) which found that between 2009 and 2012, the Co-op Bank broke customers' contracts and applied "unfair" interest rate increases to its standard variable rate (SVR) mortgages. Those affected by the ruling are the so-called "mortgage prisoners" who agreed to mortgage loans before the financial crisis of 2008. At this time, rules were laxer however after the crash, stricter measures were introduced.
Many were sold by the state to "closed book" inactive lenders - as a result, many people have been left on sky-high rates, and unable to switch providers because they don't pass new affordability checks. In this case, mortgages were taken on by Britannia Building Society owned Mortgage Agency Services Number 5 (MAS5) who was then taken over by Co-op Bank in 2009.
After the takeover, some SVR rates increased from 2.99% to 5.75% between 2009 to 2012. Co-op argued that the increases to its mortgage rates reflected rising funding costs. However, the FOS reviewed the evidence and found there were no changes to these costs during that period.
Co-op customers in the test case - who have not been named - will be compensated the equivalent of 1.25% in interest for each year going back a decade. The total payout has not been confirmed, however, it is understood to be in the thousands for each customer. Reports from The Telegraph say around 80 people could be in line for a payout, however it could be even more.
The All-Party Parliamentary Group (APPG) on Mortgage Prisoners has written to the bank to condemn it of the actions. It group has also called on the Financial Conduct Authority (FCA) to investigate the lender to find out why the overpayments were not identified and acted on sooner.
In a statement on the issue, secretary to the APPG for Mortgage prisoners, Dominic Lindley, said: “We’re talking hundreds, if not several thousand who could complain. The key message is that anyone who was a MAS5 customer needs to complain as soon as possible, because the ombudsman is only allowing the majority of consumers to receive refunds for the unfair increases going back six years from the date they put in a complaint.”
A Co-op spokesperson told the Mirror: "The Bank believes that the historic MAS5 SVR changes were all made in accordance with the terms and conditions of the mortgage contracts and reflected the financial, economic and market conditions at the time. As such, we are disappointed that, in partially upholding the complaints, the FOS has come to a different conclusion. The Bank is now working through the details of the final FOS decision and will endeavour to progress this as quickly as possible to determine the next steps.
"We remain committed to providing our customers with the support and appropriate forbearance measures they need based on their individual circumstances. We have proactively sought ways to assist customers that could be considered as mortgage prisoners, including the option to re-mortgage to a Co-operative Bank mortgage, subject to eligibility, and in line with our commitments as a responsible lender.”