Lloyds was found to have treated some customers unfairly, including ‘vulnerable’ ones, the Financial Conduct Authority said © AFP via Getty Images

Lloyds Banking Group has been hit with the largest fine for any UK high street lender in five years, after an investigation by the regulator concluded that the group had failed to support customers in mortgage arrears.

Following a probe into the way the bank dealt with borrowers in financial difficulty between 2011 and 2015, the Financial Conduct Authority said on Thursday that some were treated unfairly, “including vulnerable customers”.

The bank was fined £64m, reduced from an original £91m because Lloyds accepted the regulator’s findings. The fine comes on top of the £300m in compensation it has already distributed to 526,000 mortgage customers.

According to the FCA, flaws in the bank’s systems meant it was not consistent in assessing its customers’ circumstances and their ability to afford their mortgages, creating a risk that some were treated unfairly.

Lloyds was also found to be inflexible about agreeing appropriate minimum monthly payments. These problems were exacerbated when the bank cut jobs, and inexperienced staff were brought in to handle arrears.

“Banks are required to treat customers fairly, even when those customers are in financial difficulties or are having trouble meeting their obligations,” said Mark Steward, executive director of enforcement at the FCA. “By not sufficiently understanding their customers’ circumstances, the banks risked treating unfairly more than a quarter of a million customers in mortgage arrears, over several years.”

Lloyds had identified some of these failings — which took place at its Lloyds Bank, Bank of Scotland and The Mortgage Business operations — as early as 2011. However, the regulator found that it repeatedly failed to rectify the issues. 

Problems were again identified in an FCA review conducted in 2013. Then, despite Lloyds telling the regulator it was “on track” to implement the necessary improvements, a 2015 follow-up review by the FCA found insufficient progress. At that point, the watchdog ordered a ‘Skilled Person’s review’ — an independent investigation into a regulated firm's activities by an expert third party.

From this, the FCA has concluded that the bank breached two of its principles of business, governing the fair treatment of customers and responsible management control.

Lloyds said all affected customers had been contacted and had their mortgage arrears fees reimbursed. It began a voluntary redress programme in July 2017, whereby any borrower who paid arrears-related fees had them returned with interest — even if they were not unfairly treated.

“We have since taken significant steps to enhance how we support mortgage customers experiencing financial difficulty, including investing in colleague training and procedures,” the bank said in a statement on Thursday.

Lloyds’ £64m fine is the largest handed out to a British high-street bank since Barclays was made to pay £72m in 2015 for poor handling of financial crime risks.

“This hefty fine must serve as a warning to banks that all customers need to be treated fairly, and that firm action will be taken if they fail to meet expectations when dealing with those who are experiencing financial hardship,” said Gareth Shaw, head of money at consumer rights group Which?


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