30Jan

HSBC has reached agreement with the Financial Conduct Authority (FCA) to pay around £4 million in compensation to some 6,700 customers over inappropriate debt collection charges.

The issues concern credit card debt collections by HFC Bank Ltd and John Lewis Financial Services Limited between 2003 and 2009. Most of those affected were customers of HFC. Both companies are now part of the HSBC group.

Throughout the six-year period, customers who experienced arrears were referred to the firms’ nominated solicitors, who then automatically charged the borrowers 16.4% of the outstanding loan.

In 2010, the Office of Fair Trading (OFT), which at the time was the UK’s consumer credit regulator, ruled that the charge was unfair as it was in excess of the costs the firms incurred as a result of their efforts to collect the debt.

The firms say that they ceased applying the charge in 2009, prior to the OFT’s ruling; and that the charge was reversed on all live accounts in 2010. This gave rise to an additional issue, in that some customers had their account placed in credit following the reversal of the charge, but never had any payments returned.

One further issue with the practices of HFC is that 350 customers paid more interest than necessary after calculation errors on the part of the firm.

Customers affected by any of these issues can now expect to receive any compensation to which they are entitled. All those affected will be contacted by the bank and do not need to take any action. The method for calculating the redress amounts has been agreed between HSBC and the FCA, and includes provision for all affected customers to receive 8% interest per annum added to their payments.

A spokesperson for HSBC said:

“This is a historical issue, dating back to the period between 2003 and 2009. We have revisited the debt collection charge and, as a result, a small number of HFC and John Lewis Financial Services Limited customers may be due a refund. We will be directly contacting these customers shortly.”

A John Lewis spokesperson said:

“We are disappointed that this has happened to a very small number of John Lewis Financial Services Limited customers and are assured by HSBC that the issue has been resolved for them.”

The FCA decision marks the end of a 13-year battle by Nicholas Wilson of Hastings, East Sussex, who became aware of the issue when a number of clients of the solicitors practice he worked for complained about suffering detriment as a result of the firms’ charges. After the FCA initially declined to intervene, Mr Wilson complained to the Office of the Complaints Commissioner, which found in his favour, saying that the FCA’s handling of the matter was “bordering on the farcical”. The financial regulator then decided to re-visit the issue, which ultimately led to this redress agreement.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.