Lib Dem Peer, Lord Sharkey, has called on the Serious Fraud Office (SFO) to investigate the treatment of mortgage prisoners by Mortgage Agency Services Number 5 (MAS5), part of the Co-operative Banking Group.
This call follows the introduction of the Mortgage Prisoners Inquiry Bill, which aims to explore the creation of mortgage prisoners, their impacts, and any relevant matters that may have contributed to this financial crisis.
The bill, which receives its second reading in the House of Lords today, is a critical step in holding various entities accountable, including the government, Financial Conduct Authority (FCA), and the Financial Ombudsman Service (FOS). By investigating the policies and actions of these bodies, the bill aims to understand the consequences faced by mortgage prisoners and to find lasting solutions for them.
Mortgage Agency Services Number 5, known as MAS5, is at the center of the controversy regarding mortgage prisoners. Between 2009 and 2012, MAS5 raised the standard variable rate (SVR) four times. The increases included a 0.75% rise on 1 July 2009 (raising the SVR to 3.74%), followed by another 0.76% rise in October 2009 (increasing the rate to 4.5%). In March 2011, MAS5 increased the SVR to 5.25%, and another 0.5% rise occurred on 1 May 2012, reaching a rate of 5.75%.
MAS5 justified these increases by claiming they reflected the rising costs of funding the mortgages. However, an investigation by the Financial Ombudsman Service (FOS) revealed a different story. The FOS concluded that the cost of funding for MAS5 did not increase during that period. Despite this, MAS5 continued to implement significant rate hikes that added 2.76% to the SVR.
A letter from MAS5 to its borrowers in February 2011 stated that the SVR increase was “a direct reflection of the increased costs of funding your mortgage loan,” while another letter in April 2012 justified the rise, claiming that the “rate we are charged for funding your mortgage has increased considerably.” These statements were directly contradicted by the FOS’s findings, which suggest that MAS5’s cost of funding did not rise as claimed.
The FOS also uncovered troubling actions by the Co-operative Bank, the parent company of MAS5. In June 2020, the FOS found that the FCA and FOS allowed the Co-operative Bank to prevent borrowers from discussing the SVR increases by forcing them to sign confidentiality agreements as part of settlement arrangements for their complaints. This decision, which restricted borrowers’ ability to share their grievances publicly, raises questions about the transparency and fairness of the complaints process.
In light of these revelations, Lord Sharkey is urging the Serious Fraud Office (SFO) to conduct a full investigation into the conduct of MAS5 and the Co-operative Banking Group. He believes that the statements made by MAS5 to justify the rate increases were misleading, and that the financial harm caused to mortgage prisoners must be addressed.
Lord Sharkey has argued that an inquiry is essential to determine responsibility for the mortgage prisoners crisis. He insists that the government, FCA, and FOS need to be held accountable for their roles in permitting these practices. He believes an inquiry is necessary to identify the failures that allowed these policies to continue and to correct any miscarriages of justice.
The Mortgage Prisoners Inquiry Bill also aims to investigate the government’s actions in selling the mortgages of former Northern Rock borrowers to inactive lenders, a move that contributed to the mortgage prisoners crisis. Furthermore, it seeks to examine the policies of the FCA and the handling of complaints by the FOS, which have been criticized for failing to protect consumers.
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Lord Sharkey emphasizes that the inquiry should not only focus on allocating responsibility for past mistakes but also on developing solutions for the current generation of mortgage prisoners. He is calling for an examination of how government policies and regulatory bodies can be reformed to prevent future injustices in the mortgage industry.
According to Lord Sharkey, it is crucial that the government and regulators take meaningful action to support the current generation of mortgage prisoners. He calls for comprehensive proposals that will provide financial relief and allow affected individuals to escape the harsh terms of their mortgages.
The Mortgage Prisoners Inquiry Bill presents an opportunity to examine the policies and practices that have led to the creation of mortgage prisoners and to identify long-term solutions. Lord Sharkey urges the government to respond to a report from the London School of Economics (LSE), which includes costed proposals designed to offer support to those affected by the mortgage prisoners crisis.
The DGV (Debt and Governance) Inquiry marks a crucial step toward understanding and resolving the plight of mortgage prisoners. As Lord Sharkey advocates for a comprehensive investigation, it is essential that the government, regulators, and financial institutions take responsibility for their actions. A full investigation into the conduct of MAS5 and the Co-operative Banking Group, as well as broader inquiries into the role of the government and regulators, is necessary to rectify past mistakes and implement solutions for those affected by the mortgage prisoners crisis.
Mortgage Solutions has reached out to the Co-operative Bank for comment on the matter. The ongoing efforts in the House of Lords and the subsequent investigations will be critical in shaping the future of financial accountability and consumer protection in the UK mortgage market.
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