Banks face claims blitz over variable rate mortgage charges
Britain’s biggest banks are facing a fresh deluge of compensation claims from a campaign targeting mortgage customers who may have been overcharged during a period of more than 20 years.
Sky News has learnt that ME Group, a specialist legal technology provider, will this week spearhead a move to encourage customers who took out Standard Variable Rate (SVR) mortgages to check whether they may be owed money – in some cases running to tens of thousands of pounds.
The potential for a new claims blitz – which some estimate could lead to an industry-wide bill totalling billions of pounds – has arisen from a number of European court rulings dealing with the extent to which consumers were informed about variations in charges.
A television advertising campaign under the banner Mortgage Claims is due to launch on Wednesday, and will urge British homeowners to contact ME Legal and Financial to assess the potential for compensation.
It will say that 20,000 mortgages have already been scrutinised and that some consumers are already in line to receive five-figure payouts.
The number of customers potentially affected by the SVR overcharging issue, and the likely scale of any overall compensation pot, were unclear on Tuesday.
However, sources said that both the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) had been alerted to the issue in recent months.
ME Group executives are understood to have held talks with both the FCA and parliamentarians to highlight the potential for redress.
Officials at the regulators are said to have drawn up preliminary estimates suggesting that mortgage lenders could face liabilities running into tens of billions of pounds.
Cheshire-based ME Group stands to gain financially from a successful campaign by charging a fixed fee to consumers who use its service.
The company does not process claims itself, but assesses potential levels of remediation, ensures borrowers have valid claims before they are presented to lenders and arranges representation by a specialist law firm.
The broader claims management industry has attracted persistent opprobrium during the long-running PPI scandal, partly because of the extent to which it has adopted a scattergun approach forcing banks to bear the cost of administering thousands of fraudulent claims.
Speaking to Sky News, Rob Cooper, ME Group chief executive, said: “This issue goes back over 20 years and the harsh reality is that the most affected are the financially vulnerable who can least afford to be overcharges.
“There are millions of UK homeowners who have been paying more than they should have done for their mortgage, and many of these are mortgage prisoners who have been prevented by lenders from switching provider.”
Mr Cooper said the treatment of customers by the industry had been “clearly unfair, and borrowers rightly deserve to be remediated for those unfair practices”.
In May this year, the FCA launched a consultation on unfair contract terms which it said followed the introduction of the Consumer Rights Act “and in light of a number of rulings on variation terms in the Court of Justice of the EU”.
The City watchdog added, however, that it had considered variation terms from a range of products and said its work “does not suggest that variation terms have generally been used in a manner likely to cause widespread harm to consumers”.
Banking industry sources said that banks had already sought to address historic issues relating to SVR charges.
UK Finance, the trade association, has argued in favour of legislative changes that would help customers on closed mortgage books, or what the industry refers to as “inactive lenders”, from paying higher-than-necessary mortgage charges.
ME Group’s mortgage campaign will inevitably attract suggestions that it is engaging in ‘ambulance-chasing’ months before a final deadline for payment protection insurance (PPI) claims comes into effect.
However, sources said that ME had not participated in the tsunami of PPI mis-selling redress activity, which has so far seen Lloyds Banking Group alone hit with a bill of close to £20bn.
Any large-scale compensation campaign that affected the major high street banks would attract scrutiny from the Bank of England, which has just put the biggest lenders through their annual stress tests.
The FCA and PRA both declined to comment on Tuesday.