Abbey fined over endowments

Abbey National is urgently contacting 50,000 mortgage endowment customers who were refused compensation after the bank was fined £800,000 by the Financial Services Authority yesterday.

The City regulator handed out the penalty - the largest for mishandling mortgage endowment complaints - after concluding that Abbey had thrown out complaints from customers who should have received financial redress.

The fine would have been even higher if Santander, the new Spanish owners of Abbey, had not cooperated over problems that had occurred under the previous regime.

Abbey, which was bought by Santander last year, has received 80,000 complaints from mortgage endowment customers since January 2000 and will now write, by June 22, to 50,000 customers whose cases are being re-examined. It hopes to complete the review by the end of the year.

The bank has not revealed how much it expects to pay but has set aside £204m in the past two years to help cover mis-selling claims. Since the problems were uncovered, Abbey has replaced its head of complaints, retrained its staff and changed the way it handles complaints.

The FSA fine relates to the way Abbey handled mortgage endowment complaints between October 2001 and September 2003, a period when the FSA managing director, John Tiner, had issued a warning about the way complaints should be dealt with.

Mr Tiner, who is now the FSA chief executive, had made it clear in April 2002 that firms were being unfair in the way they handled complaints. Abbey had twice assured the FSA - in April and May 2002 - that it was following Mr Tiner's guidance when in fact it was not doing so every time.

The FSA found that between October 2001 and September 2003 Abbey mishandled 5,000 complaints, including 3,500 which were rejected when they should have been upheld. The FSA said these 3,500 customers may have lost £19m based on the projected shortfall on the endowment policy paying off the mortgage.

The bank argues that the actual redress could be lower as the compensation would be based on the difference between having an endowment mortgage and a repayment mortgage. Abbey now intends to re-examine all the mortgage endowment complaints it has received since January 2000.

The FSA has fined other firms over mortgage endowment complaints: £675,000 for Friends Provident and £725,000 for Allied Dunbar. These were used as a benchmark for the Abbey fine. The FSA also noted that it fined Abbey £2m for breaches of system and controls in 2003.

Clive Briault, FSA head of retail markets, said: "By putting its own interests ahead of those of its customers with a mortgage endowment complaint, Abbey has singularly failed to treat its customers fairly.

"Its failings were made more serious as they occurred at a time when there was a high level of awareness within the industry about mortgage endowments and concerns regarding the fair handling of complaints," he said.

The review only covers previous complaints about policies Abbey sold and advised on, such as Abbey Nation Life. Complaints about endowment policies branded as Scottish Mutual and Scottish Provident, also part of Abbey, should be made to the firms outside the Abbey group that sold them.