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Lloyds sets up £283m mortgage arrears redress scheme for 590,000 customers

Paloma Kubiak
Written By:
Paloma Kubiak

Lloyds Banking Group has agreed to set up a redress scheme for mortgage customers who incurred excessive fees when they fell behind with their mortgage payments.

Lloyds acknowledged that when customers fell into arrears,it didn’t always do enough to understand their circumstances to be confident that arrears payment plans were affordable and sustainable.

The bank plans to refund all fees charged to customers for arrears management and broken payment arrangements from 1 January 2009 to January 2016 and has provisioned £552m to fix its systems and cover costs to date. For customers who entered its litigation process during this period, redress will include any fees that were applied unfairly.

Lloyds will also offer payments for potential distress and inconvenience, and consequential loss which customers may have experienced as a result of not being able to keep up with unsustainable repayment plans.

The redress scheme will refund the accrued interest on all fees up to the remediation date or, where customers have already paid the fees, the date when the fees were paid. Lloyds will also pay an additional 8% interest for customers deprived of funds.

Lloyds will write to all affected customers to explain the size of their refund and to prompt claims for any distress and inconvenience experienced. It will also advise customers to consider whether they suffered any consequential losses as a result of this issue, such as a direct debit fee charged because of a broken payment plan.

Lloyds Banking Group suspended its arrears management fees in January 2016.

Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA, said: “Ensuring fair treatment of customers, especially those in financial difficulties or who are vulnerable, is a key priority for the FCA. We continue to engage with Lloyds as it works to improve the way it treats customers in arrears.”

£2.6bn PPI provision

Its half-yearly results out today reveal the bank also set aside a £1.05bn charge for PPI, which includes an additional £700m provision taken in the second quarter to reflect current claim levels, which are higher than provisioned for.

The additional provision will now cover reactive claims of around 9,000 per week through to the end of August 2019. This takes its total PPI provision to £2.6bn. Other conduct provisions of £540m include an additional £340m in the second quarter.

The group is battling on a number of litigation and compensation fronts and also undertaking a review of the HBOS Reading fraud and is in the process of paying compensation to the victims of the fraud for economic losses, ex-gratia payments and awards for distress and inconvenience.

A provision of £100m was taken in the first quarter and reflects the estimated compensation costs for HBOS Reading.

Meanwhile, the bank reported strong financial performance with improvements in underlying profit of £4.5bn, up 8% and improved its income by 4% to £9.3bn.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Growing revenues at the bank were driven by a good showing from its commercial banking division, and with costs heading downwards, that spells good news for profits, dividends and shareholders.

“Lloyds has two more years of the PPI storm to weather, after which a significant headwind to profitability will have dissipated. The board will be hoping that the provisions it has now made will see the bank through to the end of the claims period in 2019, while prudently expecting that there will still be some incremental charges along the way.”