Government-backed bank Lloyds will take a £500m charge over its handling of communications relating to some of its mortgages, after reaching a deal with the Financial Services Authority.
Halifax, now part of the Lloyds group, said it has reached a voluntary agreement with the FSA to pay compensation to 300,000 mortgage customers after it admitted confusing them on the interest rate they were charged.
Customers that took out a standard variable rate mortgage between 2004 and 2007 were issued with offer documents that implied they would be informed if the bank raised the interest rate cap.
In fact, Lloyds only agreed to inform one specific group of customers, leaving most uninformed when it raised the cap on its standard variable rate mortgages from two to three per cent above the base rate in January 2009.
Mortgage brokers queried Halifax’s right to change the rate if the documents didn’t explicitly say it would.
Halifax is to write to around 600,000 customers from April onwards to clear up the confusion and would make goodwill payments to around half of them.
Compensation will be based on the difference between customers’ repayments at the two and three per cent rates.
Lloyds acquired the Halifax business following its purchase of rival HBOS during the height of the credit crisis in 2008.
The HBOS takeover, which was brokered by the then Labour government, saddled Lloyds with billions of pounds of losses and led the government to step in and bail it out with taxpayers' money.
As a result of the bailout, the British government ended up with a stake of around 41 percent in Lloyds.
Lloyds shares are down 2.18 per cent, making it one of the worst-performing stocks on the FTSE 100.