Lloyds banking Group has been forced to set aside £500m for "goodwill" payments to mortgage borrowers who were sent unclear loan offers. In April the bank will send out letters to 600,000 Halifax borrowers affected, although the bank said only 300,000 would qualify for payouts.
Problems were identified after borrowers complained to the bank, but Lloyds has reached a voluntary agreement with the FSA – the City Watchdog – about payouts and no other lenders are believed to have made similar mistakes.
The bank said: "The group is committed to running its business with the highest levels of integrity and treating its customers fairly and therefore believes that a proactive co-ordinated programme to identify affected customers and make goodwill payments is the appropriate course of action."
The problems go back to 2004 when Halifax – which Lloyds took over in September 2008 – set a cap on its standard variable rate (SVR). However, the wording in its mortgage offers sent between 20 September 2004 and 16 September 2007 was confusing and did not make it clear that the rate cap could climb.
The SVR cap was originally set at2 percentage points above the Bank of England base rate but in October 2008, at the height of the banking crisis, it was lifted to 3 percentage points. Then, when the base rate was cut to 1.5 per cent in January 2009 some customers were left paying 4.5 per cent on their SVR mortgage, rather than the 3.5 per cent they anticipated on the basis of the 2 percentage points cap.
"In an effort to simplify the documentation borrowers receive, Halifax removed the line explaining about the rate cap on the SVR," explained Melanie Bien, a director of the independent mortgage broker Private Finance. "Then, when the base rate fell it changed the cap on its SVR to protect its margins. Because the chance of this happening wasn't set out clearly in the documentation, Halifax is now compensating those borrowers who were affected."
The bank did write to some customers – although it could not say how many – informing them of the change and they will receive a flat £250 goodwill payment. Other borrowers affected will receive the difference in repayments caused by the change in the rate, and this payment will depend on the size of their loan.
Ms Bien said: "Halifax is not the only borrower which changed its cap, and was within its rights to do so because this was set out in the terms and conditions. However, the fact that borrowers were not aware that this was a possibility was the real problem, which is why Halifax is now compensating them with a goodwill payment.
"It is good news for borrowers who were penalised through no fault of their own, and wouldn't have been made aware that this could happen. Lenders have a responsibility to draw borrowers' attention to such clauses."
With the agreement of the FSA the bank is reviewing its records and in April will write to all borrowers affected, with the payments being made soon after. Because the payment level has been agreed by the City watchdog, there will be no further payments made to affected borrowers even if they decide to complain to the Financial Ombudsman Service.
Lloyds is expected to announce 2010 profits of about £2bn on Friday but these are likely to be hit by the goodwill provision. The bank's statement said: "The group is making a provision of £500m in relation to the contact programme within its 2010 accounts which is expected to fully cover the payments."Reuse content