MPs reprimand Co-Operative Bank over 'unfair' mortgage hikes

Evidence uncovered by the APPG and the Financial Ombudsman Service (FOS) found that financial services firm Mortgage Agency Services No.5 (MAS5) – owned by the Co-Operative Bank – has treated customers “unfairly”.

Its standard variable rate (SVR) has risen four times between 2009 and 2012, increasing from 2.99% to 5.75%:

• On 1 July 2009 the SVR was increased by 0.75% to 3.74%
• On 1 October 2009 the SVR was increased by 0.76% to 4.50%
• On 1 March 2011, the SVR was increased by 0.75% to 5.25%
• On 1 May 2012, the SVR was increased by 0.50% to 5.75%

MAS5 defended the hike, stating that it was to “reflect changes in the cost of funding”.

An FOS investigator said that MAS5 “had not provided any evidence to show that the costs of funds it used in its business increased”.

In relation to the 2011 and 2012 SVR increases, the FOS said “[MAS5] hasn’t provided anything that relates specifically to MAS5’s own costs, or how these might have changed”.

The APPG and FOS concluded that such increases “were not in line with the terms and conditions of the mortgages”.

APPG is asking the Co-Operative and MAS5 to share the information it submitted to the FOS regarding MAS5’s funding costs, to cut the SVR to 2.76% and to immediately halt repossessions.

It is also requesting the firms to pay redress to MAS5 customers for the overpayment of interest and give customers access to The Co-Operative’s fixed rates using the Financial Conduct Authority’s (FCA) amended affordability assessment for mortgage prisoners. 

The Co-Operative Bank and MAS5 are now engaged in a Judicial Review to try and prevent the FOS from examining the fairness of the SVR increases in other cases.

The FCA will open an investigation into the SVR increases by MAS5 during the period 2009-2012, including whether senior executives within MAS5 and the Co-Operative banking group have misled FCA officials.

Seema Malhotra MP, Co-Chair of the APPG on Mortgage Prisoners, said: "The Financial Ombudsman’s investigator 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.

“We hope that the Co-operative Bank will start living up to its ethical values and pay redress to the customers who have overpaid due to the misconduct. The FCA and the FOS need to intervene to protect these customers and stop MAS5 from dragging out these cases and causing more misery to vulnerable people. Many of these customers have serious health issues or financial problems".