Mortgage calculation errors—lessons from the Clydesdale saga

Mortgage calculation errors—lessons from the Clydesdale saga

Firms need to ensure they put the interests of customers ahead of commercial interests where detriment may arise as a result of the firms’ actions. The recent FCA action against Clydesdale suggests there may need to be a recalibration when weighing up enforcement risk versus pursuit of profit.


Clydesdale, which operates under the Clydesdale Bank and Yorkshire Bank brands, is a subsidiary of National Australia Bank. The Financial Conduct Authority (FCA) has fined Clydesdale £8,904,000 for failing to treat customers fairly in relation to mistakes made by the bank in relation to mortgage repayments.

What is the background to the enforcement action?

In April 2009 Clydesdale discovered an error in how it had calculated mortgage repayments for customers with variable rate mortgages. The error came about as a result of Clydesdale’s implementation of a new mortgage repayment calculation system, which caused monthly interest and capital payments to be calculated incorrectly whenever there was an interest rate change.

As a result of the error, incorrect repayments were made on over 42,500 customer accounts. Of these, approximately 22,000 accounts were left with shortfalls because customers made repayments that were insufficient to repay their mortgages by the end of the agreed terms. The calculation error was corrected in 2010.

If the error was corrected, why did the FCA take action?

Guidance from the Financial Ombudsman Service (FOS) produced in 2001 (and therefore relevant at the time the mistake was discovered) described its approach to determining complaints involving ‘mortgage underfunding’. The guidance covered situations where the borrower had made a regular repayment quoted by the lender, but the lender (in this case Clydesdale) had quoted too low a figure. It went on to state that where the lender was entirely at fault it should write off the shortfall that had built up on customer accounts.

While FOS guidance is not strictly binding, the Dispute Resolution Manual of the FCA’s Handbook indicates that FOS guidance and decisions concerning similar complaints

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About the author:
Paul Estlin has over 15 years’ experience in the financial services regulatory arena and has worked in private practice, in house and at the regulator- at Addleshaw Goddard, Eversheds, Shoosmiths and Rosenblatt Solicitors, where Paul headed up the firm’s Financial Services Regulatory practice; in legal and compliance roles at Standard Bank and Barclays Wealth; and at the Financial Services Authority and, before that, the Personal Investment Authority.