Shearman & Sterling LLP | Financial Regulatory Developments Focus | HSBC to Provide Voluntary Redress for Historical Debt Collection Practices
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  • HSBC to Provide Voluntary Redress for Historical Debt Collection Practices
    01/20/2017
    The Financial Conduct Authority announced that HSBC Bank Plc has voluntarily agreed to set up a redress scheme of approximately £4m for customers who suffered detriment by paying unreasonable debt collection charges imposed by HFC Bank Ltd and John Lewis Financial Services Ltd. HSBC now owns both HFC and JLFS. Customers of HFC and JLFS who, between 2003 and 2009, fell into arrears were referred to the firms’ nominated solicitors. The solicitors added a “debt collection charge” of 16.4% of the customer’s balance to each customer’s account. The charge was identified by the Office of Fair Trading in 2010 as unreasonable as it did not reflect the actual costs of collecting the debt and the OFT in November 2010 formally ordered HFC to stop adding the collection charge until it varied or introduced new terms into its agreements with customers to reflect the charge. JLFS was not within the scope of the OFT’s review. In practice, JLFS and OFT had stopped adding a debt collection charge in November 2009, and in 2010 reversed the charge from all live accounts.

    In December 2015, the FCA announced that it would reconsider its decision not to investigate allegations about the conduct of HFC following a complaint to the Complaints Commissioner. Following that announcement, the FCA conducted a review of complaints against HFC and JLFS and established that approximately 6,700 customers paid debt collection charges prior to 2010 either in full, or in part, and were potentially entitled to redress. HSBC has agreed to repay to such customers the excess amounts above the actual and necessary debt collection costs, in accordance to a methodology that has been agreed by the FCA. 

    HSBC has also committed to repay the amount of the incorrectly overcharged interest to certain other customers. For each group of customers which are due redress, HSBC will also pay 8% interest per annum. HSBC will proactively contact all affected customers. 

    View the announcement.