Co-Op Bank brings legal case against review on mortgage prisoners investigation

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The Co-Operative Bank (Co-Op Bank) is bringing a legal challenge against a judicial review at London’s High Court on a customer’s past mortgage interest payments, Bloomberg UK reports.

The review is set to consider whether the Financial Ombudsman Service can investigate a complaint about the fairness of the interest rates that the lender charged customer Gwen Davies.

Bloomberg explains that the Co-Op Bank is trying to stop the ombudsman from investigating Davies’ case on the grounds that it is time-barred, according to UK regulatory rules on dispute resolution.

In a statement, the Co-Op Bank says: “In October 2018, Mortgage Agency Services Number Five Limited (MAS5), a subsidiary of The Co-operative Bank, received a complaint from a mortgage customer regarding changes made to MAS5’s standard variable rate between 2009 and 2012.”

“The complaint was referred to the Financial Ombudsman Service (FOS) and on 26 August 2021, the FOS found that it had jurisdiction to consider the complaint which we disagreed with.”

“MAS5 commenced legal action and was granted permission by the High Court for a judicial review of FOS’s jurisdiction finding on the grounds that we consider this part of the complaint to be outside of FOS’s jurisdiction and inconsistent with the time-barring rules of the Financial Conduct Authority (FCA) Dispute Resolution handbook (DISP 2.8.2).”

“Therefore this judicial review is about whether or not the events complained of are within the FOS’s jurisdiction and not on the merits of the underlying complaint. The bank is satisfied that the historical variations were applied fairly and in accordance with the terms and conditions of the mortgage contract.”

“As the hearing is today we cannot speculate on the outcome at this time,” it concludes.

Commenting on the Co-Op Bank’s legal challenge, UK Mortgage Prisoners lead campaigner Rachel Neale says: “Mortgage prisoners have suffered for over a decade after being sold on to multiple non-lending companies without protection or consent.”

“The case of MAS5, under the Co-Op Bank highlights the need for help from the government and industry and to find or use solutions put forward.”

Earlier this year in February, the All-Party Parliamentary Group (APPG) on Mortgage Prisoners wrote to the Co-Op Bank, FCA and FOS demanding action for MAS5 mortgage customers who have been hit by unfair increases in interest rates.

The evidence uncovered by the APPG and FOS suggests that MAS5 treated customers unfairly and that the increases to the MAS5 standard variable rates were not in line with the terms and conditions of the mortgage.

The FOS investigator found that MAS5 had treated a customer unfairly when it increased its SVR from 2.99% to 5.75% over the period 2009 to 2012.

MAS5 increased the SVR four times over the period 2009 to 2012, claiming that each of these rises was necessary to reflect changes in the cost of funding.

Neale says: “The FCA has also long known of their unfair practices but has chosen not to intervene.”

“Disappointingly, the Co-Op Bank’s mantra of being ethical clearly shows they have a great deal of work to do to support that statement. Those customers have been crucified by high rates for decades.”

“UK mortgage prisoners group has brought this plight into the open and challenged the banks to do the right thing,” Neale adds.

Last year, the FCA set out the loan and borrower characteristics of the wider population of 195,000 mortgages in closed books with inactive firms.

It was estimated that 66,000 of these borrowers may be able to switch mortgage products with the help of a mortgage adviser or community organisation.

Additionally, it found there were 30,000 mortgage borrowers who were unlikely to benefit from switching. They were up to date with payments but can’t switch because of their loan and/or borrower characteristics. However, the interest rate they were on meant they would be unlikely to save money from switching – so they were not classified as mortgage prisoners.

The FCA determined that at the time there were 47,000 mortgage prisoners – those borrowers who were up to date with payments and cannot switch when it might benefit them to do so because they had loan and/or borrower characteristics that are outside current lender appetite.

Of the remaining borrowers with mortgages in closed books, 34,000 are in payment shortfall, and 18,000 are near term. These borrowers wouldn’t be able to switch to a new deal, even if they were with an active lender.

Speaking in February APPG on mortgage prisoners co-chair Seema Malhotra MP says: “The Financial Ombudsman’s investigator concluded that the SVR increases by MAS5 Ltd were unfair and not in line with the terms and conditions of the mortgage. These unfair increases have had a devastating impact on customers.”

“We hope that the Co-operative Bank will start living up to its ethical values and pay redress to the customers who have overpaid due to the misconduct. The FCA and the FOS need to intervene to protect these customers and stop MAS5 from dragging out these cases and causing more misery to vulnerable people. Many of these customers have serious health issues or financial problems.”

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