Abbey Life fined record ?1m

An offshoot of Lloyds TSB was yesterday fined a record £1m for mis-selling endowment mortgages to tens of thousands of homeowners.

The financial services authority said Abbey Life was guilty of particularly serious failings and highlighted the way a 1,500-strong army of advisers "made widespread unsuitable recommendations" relating to endowment policies linked to mortgages. The authority indicated that further fines against companies are in the pipeline.

Up to 46,000 Abbey Life mortgage endowment policyholders and 3,000-4,000 other customers look likely to share compensation of up to £160m, said the regulator. In a trading statement the bank said it was setting aside £165m for this purpose.

Abbey Life, a wholly-owned subsidiary of Lloyds TSB since 1996, closed to new business in 2000. The rule breaches which led to yesterday's fine date from between 1995 and 1999.

The FSA said there had been a "systemic failure" in sales procedures. Abbey Life failed to ensure recommendations to take out endowments were made only to customers who were happy with the level of risk. The failings were also particularly serious because they occurred over a long time.

Lloyds TSB said it was "very sorry that the situation arose" and that it was committed to providing full compensation to those affected.

Susan Day, a legal executive from Hastings, is typical of customers who believe they were mis-sold an endowment. She is suing for £21,500.

Ten years ago, when she needed some short-term money, an Abbey Life adviser told her to cash in a Scottish Amicable endowment and take out a "cheaper" Abbey Life product. The value of her Abbey Life policy has fallen far short of the £43,500 promised, with the latest statement projecting a future payout of £26,000. The premiums have risen to three times the amount she was paying Scottish Amicable.

"I'm nearly 50 now, and when it matures in 2011 it won't be enough to repay the mortgage. I won't be able to get another mortgage then, as I'll be nearly 60," she said.

Abbey Life has offered £3,000 compensation which she has rejected as derisory.