Clydesdale Bank Plc · DRN-3244758

The complaint Mr and Mrs P complain that in 2010, Clydesdale Bank Plc (trading as Yorkshire Bank) mis- sold a tailored business loan to them. What happened I understand that everyone agrees:  In 2010, Mr and Mrs P had an outstanding loan of around £532,000 with Yorkshire Bank.  Mr and Mrs P then met with the bank to discuss their borrowing. There is a dispute about who requested the meeting – Mr and Mrs P say they certainly didn’t ask to meet the bank – but everyone agrees that discussions did take place.  Following those discussions, Mr and Mrs P fixed £200,000 of their borrowing for 14 years 8 months (the remainder of the original term). The fixed rate was 4.41%.  In 2019, Mr and Mrs P complained about the 2010 sale of their fixed rate loan. They said they’d felt pressured into taking the loan out, and that if everything had been clearly explained they would not have agreed to fix the interest rate at all.  Yorkshire Bank accepted that it hadn’t given Mr and Mrs P enough information about how much it would cost to repay their loan early. But it didn’t agree that it had pressured Mr and Mrs P into taking out the loan – and it thought that even if everything had happened as it should, they would still have chosen to fix the interest rate on £200,000 of their borrowing for five years. So, Yorkshire Bank offered compensation based on Mr and Mrs P fixing the interest rate for five years rather than the full term.  Mr and Mrs P did not accept Yorkshire Bank’s offer, and referred their complaint to the Financial Ombudsman Service. One of our investigators looked at the complaint. He agreed with Mr and Mrs P – he thought that if Yorkshire Bank had properly explained break costs, they wouldn’t have chosen to take any of their borrowing on a fixed rate. He therefore recommended that Yorkshire Bank pay compensation with the aim of putting Mr and Mrs P in the position they would have been in if the whole of their load had been on a variable rate from 2010 onwards. Yorkshire Bank did not accept our investigator’s recommendations, so the complaint was referred to me. I issued a provisional decision in December 2021. I said: “I do not agree with our investigator’s conclusions. Based on what I’ve seen so far, I think Yorkshire Bank’s offer was fair and reasonable at the time it was made. I note that it has already said it is willing to bring its offer up-to-date, taking into account the fact that Mr

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and Mrs P have since repaid their fixed rate loan, and I think that would be fair. I say that because:  I don’t think the bank did anything wrong in telling Mr and Mrs P that it was open to them to fix the interest rate on their loan. I acknowledge that Mr and Mrs P have spoken eloquently of the discomfort they felt at finding three senior bank officials in their home, and of their relief when the bank’s staff left. I accept that Mr and Mrs P felt intimidated, and I note that many people do find conversations with banks about loans very stressful indeed. But I haven’t seen anything that persuades me that Yorkshire Bank’s staff put any inappropriate pressure on Mr and Mrs P.  In addition, I don’t think the bank did anything wrong in failing to assess whether a fixed rate loan was the most suitable product for Mr and Mrs P’s circumstances. The bank was not required to give advice, and I’ve seen nothing to suggest that it promised that it would advise Mr and Mrs P. Its role was to provide them with information, not to tell them what they should do.  However, I do think Yorkshire Bank was wrong in not fully explaining the consequences of fixing the rate. In particular, as it accepts, Yorkshire Bank was wrong not to explain how expensive break costs could be if Mr and Mrs P wanted to repay their loan early.  So, I need to decide what I think is more likely to have happened if everything had happened as it should. In other words, I need to decide what would have happened if Yorkshire Bank had told Mr and Mrs P that fixed rate loans were available whilst also giving them sufficient information about the possibility of break costs.  Our investigator is right to say that in 2010, nobody knew for sure what rates would be over the next five, ten or fifteen years. I would expect Yorkshire Bank to have had much more sophisticated predictions than Mr and Mrs P – but nobody knew for certain what would happen. Even now, it is not possible to say what interest rates will be in the final years of a fifteen year fix taken out in 2010.  But I think our investigator was wrong to suggest that, in 2010, it was thought unlikely that rates would rise over the next five years. Yorkshire Bank has referred me to a December 2010 report from the Confederation of British Industry, which it summarised as predicting “gradual interest rate rises to begin in spring 2011 and reaching 2.75% by Q4 2012”. I am also aware of press commentary at the time in which economists were quoted as expecting rate rises in the relatively short term. Those rate rises did not in fact materialise – but I think they were a realistic possibility at the time Mr and Mrs P chose to fix the interest rate on part of their loan.  I can also see that the monthly cost of the fixed rate Mr and Mrs P chose was higher than the monthly cost of a fixed rate over a shorter period – and it was also higher than the variable rate loan it replaced. Bearing in mind the evidence Yorkshire Bank has provided, I’m satisfied that Mr and Mrs P knew that the initial monthly cost of a loan fixed over a 5 or 10 year term would have been cheaper than the longer term fixed rate they actually chose. The fact that Mr and Mrs P were prepared to pay more for a longer term fixed rate does suggest to me that they were attracted to the idea of fixing their payments for a longer period.

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 There is nothing in Mr and Mrs P’s circumstances that makes me think it was likely they would need to repay their loan after any specific period. Their business was long established, and I haven’t seen anything to suggest it was likely they would need or want to sell any of their business property during the term of the loan.  Yorkshire Bank’s offer puts Mr and Mrs P in the position they would have been in if they’d chosen a five year fix from outset. In the overall circumstances, I think that is fair – and represents a reasonable balance between the security of fixing payment for a time and the risk of having to pay a break cost if Mr and Mrs P needed or wanted to repay the loan within the first five years. I note that part of Mr and Mrs P’s objection to Yorkshire Bank’s offer was that it didn’t address the issue of huge break costs. But I’m satisfied that the bank’s offer does in fact address that issue. I can see that Mr and Mrs P have already repaid their Yorkshire Bank loan, and – given the initial outcome of this complaint – Yorkshire Bank chose not to apply break costs.” Yorkshire Bank accepted my provisional findings, but Mr and Mrs P did not. Briefly, they said:  Yorkshire Bank only offered them one fixed rate loan – they were not offered a range of fixes over different terms, and they certainly weren’t given an explanation of the costs and benefits of each of the options. In particular, they did not know that a fix over 5 or 10 years would be cheaper on a monthly basis than a fixed rate over the term they actually chose.  They did not want or request a fixed rate loan. If it had not been for Yorkshire Bank’s pressure selling, they would have simply kept their original variable rate loan over its original term.  Whilst they accept they did agree to fix part of their loan, they did so under pressure from a bank manager who wanted them to fix the whole of the loan.  They were not left with any documents or proposals after the first meeting, and they feel that prevented them from properly reviewing the terms and rates with an adviser.  They hadn’t previously seen the CBI report that I quoted, but they are aware of other commentary from 2010 from economists who thought base rates were likely to stay around 0.5%. Even if they had known of the CBI’s suggestion that rates would reach 2.75% by Q4 2012, that would not have encouraged them to fix at 4.41% for 15 years. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I am sorry to further disappoint Mr and Mrs P, but having done so I have come to the same conclusions as I did in my provisional decision, for the same reasons. I now confirm those provisional conclusions as final. I remain satisfied that, in 2010, nobody knew what would happen to interest rates over the next 15 years. Some economists were expecting a base rate rise in the relatively near future;

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other economists were expecting base rates to stay low for some time. Base rate rises were nevertheless a realistic possibility, and I see nothing wrong in Yorkshire Bank offering Mr and Mrs P the opportunity to protect themselves against those rises. It isn’t possible for me to be certain about whether Yorkshire Bank offered Mr and Mrs P fixed rate loans over a shorter term. Mr and Mrs P do not remember any such offer, but Yorkshire Bank’s paperwork does suggest that its staff obtained figures for loans over shorter terms. It is possible that Mr and Mrs P simply do not remember all of the paperwork, especially if they only had the opportunity for a brief glance at the documents. But I do still think they chose to take some of their borrowing on a fixed rate basis, which implies that protection against interest rate rises was attractive to them. Their previous borrowing had been on a variable rate with nearly 15 years remaining on its term. Despite any pressure they felt from their bank, I am satisfied that they would have known they could continue with that variable rate borrowing for the whole of their loan if they had wished to. Having said that, Yorkshire Bank was wrong not to have given Mr and Mrs P more information about the potential costs if they were to repay their loan early. I know that Mr and Mrs P strongly disagree with me, but on balance I consider that if Yorkshire Bank had given them more information they would have chosen to arrange some of their borrowing on a fixed rate over a shorter term. As I’ve said, I think a five year term represents a reasonable balance between the security of fixing payments for a time and the risk of having to pay substantial break costs if Mr and Mrs P’s circumstances changed and they needed to repay their loan earlier than anticipated. Putting things right Yorkshire Bank should pay compensation to Mr and Mrs P with the aim of putting them in the position they would have been in if their £200,000 loan had been fixed for five years from 2010. That will mean updating its offer to take account of the payments Mr and Mrs P have made since its offer was originally made. My final decision My final decision is that the offer Clydesdale Bank Plc (trading as Yorkshire Bank) has already made is fair and reasonable in the circumstances of this complaint. I order it to pay compensation to Mr and Mrs P in accordance with that offer (updated to take account of Mr and Mrs P’s subsequent payments). Under the rules of the Financial Ombudsman Service, I’m required to ask Mr and Mrs P to accept or reject my decision before 2 March 2022. Laura Colman Ombudsman

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