Huge compensation payments by Northern Rock, Co-operative Bank and Barclays could be just the beginning of a loan scandal that could affect many of Britain's banks and building societies.
The Office of Fair Trading has written this week to 50 more financial firms after the three banks revealed they were having to refund customers who may have been wrongly charged interest on loans because the lenders' paperwork did not comply with the Consumer Credit Act.
The OFT has warned the 50 banks and building societies: "There may have been failures by certain firms to discharge their legal obligations to accurately and fully provide consumers with information regarding their loan agreements".
In short, banks or building societies must include full details on loan statements or arrears notices: if they fail to do so they are not allowed to charge interest. Lenders which fail to include details have to refund the interest charged to consumers for the period which the statements or arrears notices cover.
When it came to light that Northern Rock had made the blunder it was forced to repay £270m to more than 150,000 people in December 2012. In September this year Barclays' similar blunder left it facing a £100m bill to repay 300,000 customers. Meanwhile last month the Co-operative Bank increased its provisions for customer redress to cover "an identified breach of the Consumer Credit Act".
The OFT has told the lenders to respond by Monday week - 18 November. Their responses could yet open the floodgates to more compensation payouts to hundreds of thousands of illegally-treated bank and building society customers.Reuse content