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FSA fines Bank of Scotland £4.2m over inaccurate mortgage records (Oct 2012)

- by Kelly R

Over a 7 year period, it was clear that the Bank of Scotland let their clients down on a multitude of occasions. Cashfloat reviews the FSA case carefully.

There are many rules and regulations to which mortgage lenders should adhere. It is the duty of a responsible lender to make sure that they protect the finances of their customers. If their customer lose money as a result of their mistakes, they should get compensation for it. Much of the time, banking systems involve a great number of legal issues. If the banking staff are not aware of the legislation that affects them, they will have no way of ensuring the protection of funds.

In 2013, the Financial Services Authority (FSA) let two other regulators take on its duties. The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) took over. Before that period, the FSA held all the main duties of the regulatory services. That means that the company looked over the financial sector. The watchdog ensured that there was always a level of sincerity within the services themselves. Often, this role involved stepping in when there was a problem with a financial company. The regulator used a variety of tactics to make sure that everything was above board.

Since 2013, the two regulators share the duties. They ensure that people can reach an affordable lender when they need to do so. They also seek to prevent any large scale financial scandals. In recent years, they have managed to protect a great many customers in the country, as well as prevent major disasters. Their top priority is keeping the economic state of the UK stable.

Unfortunately, there have been many instances when companies have not served their customers well. In some situations, it is quite clear that a firm could have done more to protect the finances of their clients. It is not just deceitful measures that lead to these problems – sometimes a series of mistakes can be the issue. As you might imagine, keeping well-maintained records is paramount in any financial services. Without the proper systems in place, it is no wonder that customers lose out.

When people apply for short term loans or mortgage loans, they should get all the information that they need. It is the duty of the lender to offer transparent information about the agreement. If, at any point, the terms of the agreement should change, it is vital that the lender informs their clients. If they fail to do so, it could mean troubling things for the customers. In particular, it is likely that the consumers will lose money or pay more than they first expected. If people have not budgeted for this sudden increase in interest, they may have a problem paying the fees.

Western Circle trading as is a short term lender in the UK. As a company regulated by the FCA, we examine cases whereby the FCA have previously disciplined a company in the finance industry. Through this, we can learn to avoid making the same oversights.

In 2012, the FSA found that many customers were not getting the right information about their mortgages. The customers were in an agreement with the Royal Bank of Scotland, and many of which were using Halifax as their main banking firm. Lloyds Banking Group owns both Halifax and the Royal Bank of Scotland, which is why the two companies share products. Over a seven year period, it was clear that the Royal Bank of Scotland officials had let their clients down on a multitude of occasions. The FSA then launched a review into the company to see whether they could have used better processes.

The Royal Bank of Scotland officials found that there was a problem when the staff at Halifax got confusing details. At that point, the staff there decided to launch a new schemes in hopes of rectifying some of the issues that their mistake had caused. It was then that the regulator got involved to launch an investigation.

The FSA found that the mortgage lender was not keeping accurate records of mortgages. In fact, they were using two conflicting systems. Between 2004 and 2011, the bank was running two programs to store information. While they were offering people affordable cash mortgages, they were not keeping accurate records. The two systems should have synchronised, but the officials never made this happen. That meant that the records did not make sense when you looked at them together. While some customers thought they were using a capped rate scheme, that was not always the case. The banking officials failed to tell people when their rates were about to peak. That meant that many consumers had to pay more than they expected by way of interest.

The company complied with the review in 2011, but it was not smooth sailing from there. During the review, the Royal Bank of Scotland made further mistakes. The staff contacted 33,700 customers and made wrongful payments to 22,700 customers. The simple error lost the bank a total of £20.4 million. It would appear that the company was incapable of keeping proper files, and so had to pay the cost of their inaccuracies.

The FSA uses many methods to find out whether financial services are up to date. One thing that they tend to do is track consumer sites to see whether there are any major complaints. If they find that there are many customers saying the same thing online, they might review the situation. In this case, they found that customers were complaining that the bank had prevented them from being a part of the scheme. (That is the scheme that they had launched to try and rectify the situation.) There were also many people complaining that they had not had any compensation money from the bank. After reviewing their findings, the FSA decided that they had to intervene.

After the investigation, the FSA issued a £4.2 million fine, which the Bank of Scotland had to pay. While the company was not willfully misleading its customers, it did cause many of them to lose money. The information that the bank was using was not accurate, which meant that the customers were losing out. It took the company seven years to notice and make moves to rectify the problem. That meant that many customers were paying more than they should have been for an extended period. Both the FCA and the PRA now work to ensure that situations like this one are a rarity.

Kelly R
Kelly Richards is the founder of the Cashfloat blog and has been working tirelessly to produce interesting and informative articles for UK consumers since the blog’s creation. Kelly’s passion is travelling. She loves her job because she can do it from anywhere in the world! Whether inspiration hits her while sitting on the balcony of a French B&B, or whether she is struck with an idea in a roadside cafe in Moscow, she will always make sure that the idea comes to fruition. Kelly’s insights come from her knowledge gained while completing her degree in Economics and Finance as well as from the people she meets around the world. Her motto is: Everyone you meet has something valuable to teach you, so meet as many people as you can!
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