Credit and loan customers set for £149m windfall

A total of 17 banks and building societies are having to pay back over £149 million due to errors in credit and loan agreements.

The news comes following action by the Office of Fair Trading (OFT), which highlighted many financial institutions had failed to provide customers with their post-contractual information, as required by the Consumer Credit Act 1974. The repayments are expected to be made to around 497,000 people.

Clients who have already paid off their debt should receive their refund via a cheque, while those still making instalments are expected to see a reduction in the amount they owe. The OFT has declined to name any of the banks and building societies involved.

Under the terms of the Act, lenders are not able to receive interest or default payments until they have successfully completed all of their statutory requirements. These charges were paid for services such as hire purchase, loans and store cards.

The failings first came to light in December 2012, following the revelation 152,000 Northern Rock customers had to be issued a refund due to a paperwork error. Barclays had to follow suit in September 2013, after its mistakes forced it to pay out around £100 million in compensation. The Co-Op Bank also made a similar announcement, but released no details about how many clients were affected, nor how much it had to repay. 

As a result of these findings, the OFT wrote to a total of 50 banks and building societies, enquiring whether they had fulfilled their obligations under the Consumer Credit Act. It is thought the average customer could expect to receive around £300 as a result of this investigation.

David Fisher, senior director for consumer credit at the organisation, commented: "These issues were not deliberate misconduct, but the institutions concerned should have ensured they were complying with the law. The OFT welcomes the proactive steps taken to return money to customers where it was incorrectly charged."

He added consumers would not need to contact their lenders directly, as they would be notified in time if their policies were part of the investigation. 

By James Francis