Lib Dem peer Lord Sharkey has written to the Serious Fraud Office (SFO) asking it to probe the treatment of mortgage prisoners by Mortgage Agency Services Number 5 (MAS5), part of the Co-operative Banking Group.
This follows the publication of the Mortgage Prisoners Inquiry Bill, to look into the events surrounding the creation of mortgage prisoners, their consequences and any other relevant matters.
The bill receives its second reading in the House of Lords today, and aims to look at the policies of the government, Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS).
MAS5 increased the standard variable rate (SVR) four times from 2009 to 2012.
The firm has said the increases reflected the changes in the cost of funding the mortgages.
This included a 0.75% increase on 1 July 2009 to 3.74% and a 0.76% rise later that year on 1 October to 4.5%. On 1 March 2011, MAS5 raised the SVR to 5.25%, an increase of 0.75%. Then, on 1 May 2012, the SVR was increased by 0.5% to 5.75%.
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A FOS investigation concluded that “the evidence doesn’t show that there were changes in the overall costs MAS5 was liable itself to pay for the funds that it used”, and “as a result, the changes to the SVR MAS5 made between 2009 and 2012 – which collectively added 2.76% to the SVR – were not made for reasons permitted by the contract”. It found “the evidence shows that MAS5’s cost of funding did not increase”.
Lord Sharkey said the conclusion was different from what borrowers were told, as a letter sent by MAS5 in February 2011 claimed the increase to the SVR was “a direct reflection of the increased costs of funding your mortgage loan”. In April 2012, another letter said the SVR increase had been made after “careful consideration” and that the “rate we are charged for funding your mortgage has increased considerably”.
Further, this appeared to confirm a provisional decision from the FOS in June 2020, where it found the FCA and FOS allowed the Co-operative Bank to prevent a borrower from discussing the SVR increases by requiring them to sign a confidentiality agreement to settle their complaint.
Lord Sharkey said: “We need a full investigation by the Serious Fraud Office into the conduct of Mortgage Agency Services Number 5 and the Co-operative Banking Group and the statements they made to customers to justify the increases in the SVR.”
In the second reading of the bill today, Sharkey will ask the government to respond to a report from the LSE, which included costed proposals to support mortgage prisoners.
The bill proposes to examine the actions of the Conservative government when selling the mortgages of former Northern Rock borrowers to inactive lenders, the policies and practices of the FCA and the handling of complaints made to the FOS.
Lord Sharkey said: “We need an inquiry so we can allocate responsibility and examine the mistakes within government and regulators that caused the very bad situation for thousands of mortgage prisoners.
“We need an inquiry to identify and correct any failures at the FCA and the FOS and correct any miscarriages of justice [that] may have occurred.
“Most of all, we need an inquiry to develop and implement solutions for the current generation of mortgage prisoners.”
Mortgage Solutions has contacted Co-operative Bank for comment.
