HSBC has set up a £4m redress scheme for customers hit by unreasonable charges that were added by solicitors appointed to chase debts.
The development follows a U-turn by City watchdog the Financial Conduct Authority, which in 2015 announced it would reconsider its decision not to investigate complaints about the conduct of sub-prime lender HFC Bank.
The scheme, set up voluntarily by HSBC, will also encompass John Lewis Financial Services, also owned by the bank.
Between 2003 and 2009, customers of HFC and JLFS in arrears were referred to the firms’ nominated solicitors, who the watchdog declined to identify.
The solicitors then added 16.4% of the balance to the account as a 'debt collection charge’, a flat rate charge identified as unreasonable by the Office of Fair Trading in 2010 because it did not reflect the cost of collecting the debt.
In November 2010 the OFT forced HFC to stop adding a collection charge until it had varied or introduced new terms for customers. JLFS was not within the scope of the OFT’s review but was carrying out similar practices.
HFC and JLFS stopped adding a debt collection charge in November 2009 and in 2010 reversed the charge from all live accounts.
Since it reversed its decision not to probe complaints about HFC, the FCA has reviewed allegations concerning both HFC and JLFS. The watchdog has established that about 6,700 customer accounts, the vast majority with HFC, paid some or all of the charge before 2010 and are potentially entitled to redress.
Customers returned to credit by the reimbursement of the charge will also receive a rebate of the credit amount.
HSBC to compensate customers hit by debt collection charges added by solicitors
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