Clydesdale Bank has said sorry after being hit by an £8.9 million fine for miscalculating the repayments on more than 42,500 mortgages.
The Financial Conduct Authority (FCA) fined the bank for failing to inform its customers of their rights after making a mistake that which left around 22,000 facing a mortgage shortfall, because their repayments were insufficient to clear their debt at the end of the term.
Shortfalls ranged from under £20 to more than £18,000, with an average of £970. The error was discovered in 2010.
Clydesdale, which is owned by National Australia Bank, has agreed to compensate all those who underpaid on their mortgages as a result and write to other affected customers.
The FCA said that although Clydesdale contacted customers after discovering its error and set up a dedicated call centre to deal with any enquiries, it wrongly sought to balance its own commercial interests against the requirement to treat customers fairly.
Letters the bank sent to customers suggested they had no alternative but to bring their repayments up to date. Many customers, however, could have rejected demands to repay the shortfalls caused by Clydesdale's calculation errors. The bank's call handlers were also given poor instructions.
Tracey McDermott, the FCA's director of enforcement and financial crime, said: "We all budget on the assumption that the information our mortgage lender gives us about what we need to pay is correct.
"Here Clydesdale failed in that basic duty and, when it discovered the problem, sought to pass all of the consequences on to its customers - expecting them to find the money to remedy mistakes which were entirely of Clydesdale's making.
"Firms must put the interests of customers at the heart of their business if we are to restore trust and confidence in financial services. Clydesdale is today paying the price for its decision to put its bottom line ahead of the need to ensure its customers were treated fairly."
Clydesdale and Yorkshire Bank's chief executive David Thorburn said: "I am very sorry that this wasn't handled as it should have been. We should have made it clear at the time that this was entirely our fault and that some customers may be entitled to compensation.
"Our priority is to fix this for customers as quickly as possible and they will each receive a letter explaining how we will make this right for them. In addition, an automatic compensation process for customers who underpaid as a result of our error is in place to provide immediate resolution for over 14,000 customer accounts.
"Those customers will receive a full apology and confirmation of their refund within the next 48 hours. We will work with the remaining customers, whose cases are more complex, to discuss how they may have been affected and what their options are. The vast majority will hear from us by mid-October.
"We have voluntarily agreed to take action that will go over and above that required by the FCA. While the fine has been calculated under the new and more stringent penalty regime, we are grateful that our efforts to put this right for customers quickly have been recognised and the penalty reduced."
Clydesdale will now write to all customers who were affected by the error who did not receive compensation following the bank's original communication exercise. Mortgage-holders do not need to do anything until they are contacted by Clydesdale.
The Financial Ombudsman Service dealt with 600 cases in total and upheld the majority in the consumer's favour, early on and without the need for a decision.
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