HSBC will compensate 18,000 customers for unfair debt charges

Thousands of HSBC customers could be entitled to compensation for 'unreasonable' debt collection charges made by John Lewis Financial Services (JLFS) and HFC Bank 10 years ago.

Between 2003 and 2009, JLFS and HFC Bank customers who fell behind on repayments were referred to each firm's nominated solicitors. These customers were then charged an eye-watering 16.4% of the outstanding balance for debt collection.

The Office of Fair Trading found these charges to be 'unreasonable' in 2010, as they did not reflect the actual cost of collecting the debt.

In 2017 a voluntary redress scheme to compensate affected customers was put in place by HSBC, which now owns both firms.

While HSBC initially said only 6,700 customers were affected, it has now confirmed that 18,500 borrowers could be owed refunds.

Here, we explain how the HSBC compensation scheme works and what to do if you think you might have been affected.

How do I apply for compensation?

HSBC has already sent letters to customers who could potentially be due compensation.

Where HSBC's records show that you paid the unreasonable fees, the process should be straightforward. All you need to do is reply to the letter with additional details so that the payment can be arranged.

In more complex cases, where the records indicate you might be due compensation but it isn't confirmed, HSBC may ask you for further evidence. This will include documents such as bank statements or proof-of-payment receipts.

Once HSBC has investigated your case, it will confirm whether you're eligible for a payout.

If you think you paid the debt collection fees but haven't received a letter, you should call HSBC on 0345 5857 564.

• Find out more: best and worst banks.

How much compensation will I get?

The amount of compensation awarded to each customer is calculated on a case-by-case basis.

If you're entitled to compensation, you should be refunded the fees you were charged, plus 8% interest per annum interest. So, for example, if your outstanding balance was £1,000, your debt collection charge would have been £165 in 2009. With interest, you could be owed up to £297.

HSBC was not able to confirm the total amount of compensation that will be paid out through the scheme.

• Find out more: 44 tips for paying off your debt.

How can I contact HSBC?

If you have a query, you can call HSBC directly on 03455 857 564.

You can also contact it via post at HSBC UK Bank Plc, Business Review Centre, Redcliff Quay, 120 Redcliff Street, Bristol, BS1 6HU.

The Financial Conduct Authority (FCA) encourages anyone who received a letter from HSBC to get in touch with the bank.

HSBC also urged all contacted customers to respond to their letters.

A spokesperson from HSBC told Which?: 'Doing the right thing by HFC customers who paid unreasonable debt collection charges during the period 2003-2009 is an important undertaking for us.

'Earlier this year, we expanded our review to identify further HFC customers who may be eligible for reimbursement through a broader and more complex investigation of third-party records.

'We have written to those customers identified through this process and encourage them to contact us in response.'

How to manage your debt

If you're having trouble keeping up with your loan or credit card repayments, it's best to get help as soon as possible.

By burying your head in the sand, you may continue to rack up interest, getting further in debt, and risk going into debt collection.

Our comprehensive guide on how to manage your debt has lots of practical advice and tips to help you pay off your balance.

There are also a number of services that offer free debt advice, which can help you get on top of your finances and make plans for the future.