Interest Rate Refunds – Banks Under Pressure Again

Ever since the PPI mis-selling scandal banks have been under pressure to compensate customers who have found themselves out of pocket due to error or malpractice. PPI has become a costly business for the banks, with billions being repaid to customers who had been sold an unsuitable product.

Now the banks are under pressure again for breaching the rules, this time for wrongfully charging interest on personal loans due to vital information not being included when issuing arrears notices or loan statements.

The Credit Consumer Act 1974 (CCA) states customers are entitled to a minimum amount of information in loan statements. Section 77 CCA 1974 obliges banks to provide customers with statements which specify:

• The total loan amount borrowed
• The total amount which is due to be paid back to the bank to date, including any payments still outstanding. The dates each payment was due must be listed individually.
• The total amount which will be paid off by the time the loan agreement ends, again listing the dates when each payment will be due individually.

Insufficient Information

It now appears a number of banks have not provided the necessary information to customers e.g. the original loan amount or change of repayment date. These errors have resulted in people paying interest on personal loans when it was not due. As a result, the banks have been ordered to refund these interest payments.

In 2012 the now defunct Northern Rock was found to have failed to comply with the CCA and Northern Rock pledged to refund £270 million in interest to customers. In September Barclays agreed to refund £100 million following an admission that 300,000 customers had been overcharged due to paperwork errors over a 5 year period.

The Office of Fair Trading has now written to 50 other banks and building societies informing them they too have fallen foul of the rules on loan statements. The banks are now looking at yet another hefty bill as the cost of refunding their customers soars into hundreds of millions for each of them.

Find out more about Financial Negligence.

By Maria Kalirai