MPs call on Co-op Bank to pay redress to customers who suffered 'devastating impact' due to unfair rate increases

In a statement, the APPG said: “ The FOS has confirmed its final decision that Mortgage Agency Services No.5 (MAS5), which is part of the Co-operative Banking group, has treated customers unfairly when it increased their Standard Variable Rate from 2.99 per cent to 5.75 per cent over the period 2009 to 2012.

The APPG statement added: “MAS5 increased the SVR four times over the period 2009 to 2012. It claims that each of these rises was necessary to reflect changes in the cost of funds it used in funding its mortgage lending business. The FOS has found that the ‘evidence doesn’t show that there were changes in the overall costs MAS5 was liable itself to pay for the funds’ that it used and ‘as a result the changes to the SVR MAS5 made between 2009 and 2012 – which collectively added 2.76 per cent to the SVR – were not made for reasons permitted by the contract.’”

Seema Malhotra MP, Co-Chair of the APPG on Mortgage Prisoners, said “The FOS has concluded that the SVR increases by Mortgage Agency Services No.5 (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. Many of these customers have serious health issues or financial problems.

“Now that the Co-operative Banking Group has been shown to have treated customers unfairly by increasing the Standard Variable Rate, it must start living up to its ethical values and pay full refunds to the customers for all of the interest they have overpaid due to the breaches of contract and the 2.76 per cent unfair interest rate increases. We need an independent review into what went wrong at the FCA (Financial Conduct Authority) and the FOS. It is clear that both organisations missed opportunities to uncover and investigate these unfair SVR increases and the FOS should immediately review all of the previous cases involving MAS5 where it had wrongly rejected the customers’ complaints.”

A spokesman for the Co-operative Bank said: “ “The bank has received a final decision from the Financial Ombudsman Service (‘FOS’) on two long-standing customer complaint cases that refers to historic standard variable rate (‘SVR’) changes made to some of our Mortgage Agency Services 5 Limited (‘MAS5’) mortgages over a decade ago. MAS5 is a former Britannia Building Society subsidiary that became a bank subsidiary after the merger between Britannia Building Society and the Bank in 2009.

“The bank believes that the historic MAS5 SVR changes were all made in accordance with the terms and conditions of the mortgage contracts and reflected the financial, economic and market conditions at the time. As such, we are disappointed that, in partially upholding the complaints, the FOS has come to a different conclusion. The bank is now working through the details of the final FOS decision and will endeavour to progress this as quickly as possible to determine next steps.

“We remain committed to providing our customers with the support and appropriate forbearance measures they need based on their individual circumstances. We have proactively sought ways to assist customers that could be considered as mortgage prisoners, including the option to re-mortgage to a Co-operative Bank mortgage, subject to eligibility, and in line with our commitments as a responsible lender.”

A spokesperson for the Financial Ombudsman Service added: “A mortgage is likely to be the most significant loan a home buyer is ever going to acquire, which is why it’s so important they are treated with transparency and fairness. It’s crucial that consumers are able to understand what their mortgage means for their finances, and how interest rates could change. These specific cases are complex and have been subject to significant legal challenge by MAS5, a subsidiary of the Co-Operative Bank. We are pleased that we can now resolve these complaints and, where we’re satisfied customers were charged interest unfairly, consumers can obtain redress. If people don't feel they've been treated fairly by their mortgage provider, they should contact our free, independent service and we'll see if we can help.”

The statement confirmed that “with the two final decisions we’ve issued so far, the Ombudsman found that some of the MAS5 SVR charges were excessive and unfair, leading to the complainants being overcharged”.

A spokesman for the FCA said: “Parliament has set up the Financial Ombudsman Service to be operationally independent, so that they are able to consider decisions on individual cases. We welcome the fact that they have now issued these decisions. We expect firms to comply with our complaints rules once decisions are issued.”