This briefing deals with compensation that might be awarded against a lender where:
This clarifies our general approach to such cases. It may help lenders that wish to settle with people who have complained to them. A separate briefing note deals with cases where a policy was taken out but was not continued.
We are required to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case. We may decide that fairness requires a different approach in a particular case.
We apply the law, the principles of the Mortgage Code and good industry practice. We don't write the Mortgage Code and we have no power to make rules about how financial services are provided.
Typical cases where we would probably consider the lender was not at all to blame are where:
In such cases, we would not award any compensation.
A typical case where we would probably consider the lender was 100% to blame is where: the lender agreed that it would arrange the policy; the borrowers had reasonable cause to believe that their monthly payments to the lender included the policy premiums; and the borrowers raised the matter with the lender as soon as the discrepancy became obvious.
If we consider that the lender was 100% to blame, we will require it to pay the current value of a replacement policy's extra premiums - calculated as follows:
Premiums that will have to be paid from now onwards
Total premiums that will have to be paid from now for a replacement policy of the same type based on:
Premiums that should have been payable from now onwards
The total premiums that would have been paid from now if the original policy had been taken out. If the amount of the original premiums is unknown, we will base this on current rates for a replacement policy of the same type based on:
A - B = C
The difference between the premiums that:
Current value of the extra premiums
The borrowers receive compensation now in a lump sum, but the extra premiums will be paid gradually from now to the end of the term. So the current value of extra premiums [D] is the amount that would have to be invested now to make up the extra premiums [C] over the rest of the term. Currently we assume a yearly investment return of 4%.
If the original policy was for the amount of the loan 'plus profits':
In other cases:
If we do deduct any past savings, we will not add interest to them. Usually, we will not award compensation for any future inconvenience of having to pay the original premiums.
The following examples are based on a case where:
Exceptionally, if the lender showed that £1,000 of the past savings formed an identifiable and readily-realisable part of the borrowers' current assets:
Exceptionally, if the lender showed that all the past savings formed an identifiable and readily-realisable part of the borrowers' current assets:
A typical case where we would probably consider the lender less than 100% to blame is where: the terms of the mortgage required that the lender should see the policy, and it failed to do so; but the borrowers must have known that no policy had been taken out.
In such cases, we would reduce the compensation proportionately. And, once borrowers must have known there was no policy (for example, by discovering that they are not paying premiums) and keep quiet, it would not be fair to disregard any notional past savings that accrue after that.
A separate briefing note deals with cases where a policy was taken out but was not continued.
We will not reopen past cases where a full and final settlement was agreed between lender and borrower. Nor will we reopen past cases that were the subject of an initial decision (accepted by both parties) or a final decision by the Financial Ombudsman Service, Banking Ombudsman Scheme or Building Societies Ombudsman Scheme.