Bank of Scotland has been unfairly double-billing customers who fell behind on their mortgages, a High Court judge has ruled.
Master Ellison said the bank's behaviour had been unconscionable.
His finding in a Belfast courtroom could have implications for thousands of mortgage holders across the UK, the charity which took the case said.
Master Ellison said: "The plaintiffs' reliance on extinguished arrears may fairly be described as double-billing. Unilateral consolidation with double billing creates very real problems for borrowers, their advisers and the court.
"To the extent at least of the double billing, it is unconscionable."
Master Ellison said: "The plaintiff is, as it were, having its cake and eating it. There may not be fraud involved, but I would certainly not regard this as fair accounting."
Housing Rights Service uncovered the issue when a number of customers contacted its mortgage debt advice service. Advisers notice a pattern of unexplained increases in mortgage payments despite there being no rise in the bank's interest rates.
Once you have opened a current account with a bank or other lender, you will get a steady flow of emails, letters (and maybe phone calls) offering you a savings account, loan, mortgage, ISA etc to go with it. But while it may be tempting to have everything in one place, it's better to do the legwork and shop around for the best financial products. You can compare interest rates on loans and savings accounts in the 'best buy' tables in the newspapers, or look online on comparison sites. Remember you can still easily transfer your money between accounts, even if they are not with the same financial institution.
Whether you want to apply for a new mortgage or refinance an existing one, your bank will probably be very happy to give you an instant quote in the hope that you will go with them. They may not tell you that you can shop around at other lenders. A mortgage broker can give you an overview of the best interest rates on offer, and might be able to cut you an even better deal him/herself.
Want to cash in your jars of change that are sitting on your shelves at home? Many banks are not very keen on coins. They often only take it from their own customers. You will have to sort it into different denominations and put the coins in the bank's bags in set amounts (for example, £1 for coppers, £5 for silver, etc). Some banks only take a limited number of bags a day, or won't take any at busy times. Others take a different view: HSBC has free coin deposit machines in many larger branches where you pour your jar of coins into the machine and it counts them and automatically credits your account. Barclays, NatWest and RBS also have machines in large branches in city centres.
Bank employees now have a duty to point out that they only advise on the bank's products and don't offer independent financial advice. What they won't tell you is that even the advice they give you about the bank's own products should be treated cautiously. Bank staff are often undertrained, underpaid and overworked. (You could ask for the employee's qualifications before getting advice.) So do your own research and/or find an independent financial adviser.
Nothing is set in stone. Your bank won't tell you this, but sometimes it will waive a fee, for example an overdraft or an ATM fee, depending on the circumstances. You have nothing to lose by asking, if you can argue persuasively why they should waive the fee. Citizens Advice says your bank should treat you sympathetically if you can show financial hardship.
As stated in the previous slide, some things are negotiable – such as interest rates or waiving fees – if you can make a good case for it. In that instance, talking to an employee in person is better than filling in a form online.
If your account is overdrawn and you get paid, your bank could use this money to pay off your overdraft without your permission. However, you have a right to ask them not to do this so you can pay your rent or mortgage first. This is called first right of appropriation. You have to ask your bank in writing, and you'll need to write to them with new instructions every time money gets paid into your account. Make sure you write 'first right of appropriation' in your letter.
If money is mistakenly credited to your account, your bank or building society can recover the money, assuming they do this within a reasonable time. But you may be allowed to keep the money, for example if you didn't realise the bank had made a mistake and spent the money in good faith. You would have to prove that you spent it in such a way that it would be unfair to ask you to pay it back. You can complain to the Financial Ombudsman if you think your lender is being unfair in asking you to repay the money.
If you do have to pay it back, you could try to reach an agreement with your bank to pay it back in instalments without interest being added.
The Financial Ombudsman Service has more advice on what happens when payments have been credited to the wrong account. If you did something wrong - for example, by entering the wrong account number - rather than the bank, the Financial Ombudsman may still uphold your complaint. They consider whether the financial institution made it clear to the consumer that only the bank sort code and account number are used to process the payment, rather than the name of the payee. They will also ask whether the lender should have realised that the consumer had made mistake, and once the problem came to light, did the firm take reasonable steps to try to get the money back from the recipient.
If too much is deducted from your account, your lender may have to refund the full amount of the payment. For example, if the money is taken through a direct debit or credit card payment for a hotel room or car rental. When deciding whether the debit was reasonable, the bank or building society will take into account your previous spending pattern. But the bank doesn't have to refund the payment if you agreed the amount beforehand or were informed of the payment by your lender at least four weeks before.
If you don't have enough money in your account to cover a direct debit payment, your bank may not make the payment. It doesn't have to tell you that the payment hasn't been made, so the onus is on you to keep checking your account. If, on the other hand, the payment goes through, you may be charged for an unauthorised overdraft.
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The court stated that the capitalisation of the arrears by adding them to customers' bills resulted in them being extinguished and as such it should not be permissible to rely on such arrears to justify repossession legal proceedings.
It found that the practice of Bank of Scotland distorted the borrowers' perception of affordability. That was because they faced increased monthly payments reflecting the arrears plus a demand for immediate payment of the arrears.
The judge said this made it impossible for the court to define or ascertain the period within which any payment proposal by borrowers would clear the arrears.
"The plaintiffs' stance is one of extremely select subjectivity. It has somehow turned a tool of forbearance into its opposite."
He said he was imposing a series of strict conditions on the bank if it tried to enforce any suspended repossession orders.
He added that if the bank failed to meet these conditions, it "may face an uphill struggle".
Christopher McGrath, solicitor with the Housing Rights Service, said the law provides protection to borrowers by allowing the court discretion to stop repossession action when a borrower can put forward a payment arrangement.
He added: "However the actions of Bank of Scotland distorted this discretion.
"It is our view that this practice unfettered would undoubtedly have resulted in many borrowers unnecessarily losing their homes."
Bank of Scotland is a subsidiary of the Lloyds Banking Group.
A Lloyds Banking Group spokeswoman said: "We encourage customers to contact us at the earliest opportunity if they believe that they will be unable to make their monthly mortgage payment.
"Repossession is always the last resort and we work hard to ensure that we are providing customers facing financial difficulty with the right support to help ease their circumstances and ultimately help to resolve the situation.
"We are currently considering the Northern Ireland High Court judgment made on 4th August and our position following that judgment.
"Once we have fully reviewed the findings, we will respond accordingly."