MSE News: Mortgage billing blunders could trigger partial debt write-off

Former_MSE_Guy · 1 September 2010 at 11:12AM

This is the discussion thread for the following MSE News Story:

"Borrowers who owe more than previously thought due to a lender error may get the shortfall written off if they complain ..."

Read the full story:
Mortgage billing blunders could trigger partial debt write-off

michaels · 1 September 2010 at 12:31PM

Another example of the Govt over riding contract law to the detriment of big companies - no doubt popular in the shot term but it will come back to bite when companies chose not to do business in the UK or charge additional regulatory risk premia thus slowing the economy in the long term.

To clarify, I am not saying that the borrowers should not receive compensation related to any loss they have suffered as a result of the error but just that writing off the full amount does not seem appropriate.

luckyfool · 1 September 2010 at 12:51PM

michaels wrote: »

Another example of the Govt over riding contract law to the detriment of big companies - no doubt popular in the shot term but it will come back to bite when companies chose not to do business in the UK or charge additional regulatory risk premia thus slowing the economy in the long term.

To clarify, I am not saying that the borrowers should not receive compensation related to any loss they have suffered as a result of the error but just that writing off the full amount does not seem appropriate.

This only refers to potentially writing off the underpaid element due solely to the bank's error, and where the customer was not aware of it. i.e. If underpaid by £50 a month for two years then the amount written off is £1,200. I don't see this as being a particularly unreasonable position for the FOS to take, and I'm not sure I see what your issue with it is?

dunstonh · 1 September 2010 at 1:05PM

I am split on this.

Part of me thinks its right if the lender is totally to blame. However, another part of me thinks that these people are getting away with paying far less than they should have. Redress is normally paid on errors to ensure they are no worse off than had the error not occurred. In this case, you were rewarding them for the error. So, those that were caught out and feeling (justifiably) hard done by must now be rubbing their hands together.

A middle ground option would possibly have been better. i.e. wipe out the interest on the shortfall, but still require the capital payment (over a period)

jamesd · 1 September 2010 at 2:16PM

michaels, it's long-settled law that if you are enriched due to an error and honestly believed that the situation was correct, you wouldn't have to repay the money if you'd done something like spending the money on day to day living expenses. While if you had the means or had simply set the money aside, you would be expected to repay it. The Ombudsman doesn't seem to be going much, if at all, beyond that.

To go beyond it the Ombudsman would need to rule that the contract was binding on the lender even for borrowers who could repay - that is, that the wrong offer was binding on the lender for all borrowers. Or even more beyond it, binding even for those who clearly noticed the error and didn't report it.

If you wonder how it can happen, consider my own situation:

Product 1, rate 3.59%, no fees
Switched to product 2, rate 2.79%, no fees
Lender adjusted available offers
Switched to Product 1b, rate 2.99%, fee
Offer letter for Product 1b, rate 2.49%, no fees
Corrected offer letter for Product 1b, 2.49%, fees
Corrected again offer for Product 1b, 2.49%, fees

That's currently three wrong offer letters, two of them corrections, all quoting a rate 0.5% lower than it should be, when the genuine rate is still 0.6% below the rate for the same LTV at the start of the process.

Given all of the legal and other checks involved in getting a mortgage, I can readily understand someone believing that the 2.49% rate was correct and not pursuing it, or not continuing to pursue it after the first or second corrected offer was sent.

That won't happen in my case, because I noticed and am not inclined to exploit the error, but I do know how easily I could have assumed that I was simply getting a new rate due to the product switch and that there was no error.

michaels · 1 September 2010 at 2:30PM

I agree if enough of the documentation says an incorrect rate for you to have reasonably assumed that that was the correct rate then who is to say it was an error and not actually the correct rate?

I also agree with DunstonH that the interest on payments that should have been made but were not should be written off - after all the borrower did not chose to borrow the extra amount. However where the full amount is very large and is obviously an error (ie it does not correspond to the offer or any other documentation) then it would be unfair for the entire sum to be written off - if I discovered I had been under claiming my expenses over a period of time I would expect them to make up the short fall not just tell me it was my mistake so hard luck.

As I said I don't think it would be unreasonable to waive interest on the unplanned borrowing nor for the lender to pay compensation to make up for any loss suffered by the borrower through having been charged wrongly but I can't see that the whole amount should be written off - how would that be fair on borrowers who had been charged correctly and therefore aren't going to get any of their payments written off? (and indeed might have to pay more as the banks look to increase profit elsewhere to make up for this loss and possible future losses where the rules are changed and they have to write off legitimate debts)

MSE News: Mortgage billing blunders could trigger partial debt write-off

Comments

Confirm your email address to Create Threads and Reply

🚀 Getting Started

Categories

Is this how you want to be seen?

Get our FREE Weekly email full of deals & guides - and it’s spam-free