9 February 2024
Impartial investigation of Danske Bank A/S's debt collection
Report no. 5 concerning the Danish FSA's decisions of 26 November 2020 and 3 December 2021
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Contents
1. | INTRODUCTION AND BACKGROUND | 6 | ||
1.1 | Introduction | 6 | ||
1.2 | Background | 7 | ||
1.3 | Contents of this report no. 5 | 9 | ||
1.4 | Method and observations about the bank's work processes | 11 | ||
1.4.1 | Form of collaboration between the impartial reviewer and the bank | 11 | ||
1.4.2 | Special information about our investigation of claims in the PF system | 12 | ||
2. | SUMMARY AND CONCLUSION | 12 | ||
2.1 | Compensation regarding accounts in the DCS system | 13 | ||
2.1.1 | The bank's calculation of compensation | 13 | ||
2.1.2 | Our observations and conclusions | 14 | ||
2.2 | Compensation regarding PF claims | 17 | ||
2.2.1 | The bank's calculation of compensation | 17 | ||
2.2.2 | Our observations and conclusions | 18 | ||
2.3 | Cases subject to estate administration | 20 | ||
2.4 | Additional issues considered in this report no. 5 | 21 | ||
3. | STATUS AND OVERVIEW OF THE DEBT COLLECTION CASE | 23 | ||
3.1 | Total scope of the debt collection case | 23 | ||
3.2 | Accounts and claims that we dealt with in our report no. 4 of 4 June 2023 | 24 | ||
3.3 | Accounts and claims we deal with in this report no. 5 | 29 | ||
3.4 | Accounts and claims not yet dealt with by us | 32 |
3.5 Assessment of the bank's objective of and status for paying compensation
as at 31 December 2023 | 34 | |||
3.6 | Additional issues | 37 | ||
3.7 | The bank's plan for the continued work on the debt collection case | 39 | ||
4. | COMPENSATION RELATING TO ADDITIONAL ACCOUNTS IN THE DCS SYSTEM | 41 | ||
4.1 | Personal accounts in the DCS system at complexity levels 5 and 6 | 42 | ||
4.1.1 | Customers, case types and issues covered by the compensation model | 42 | ||
4.1.2 | General information about the compensation model, its purpose and objective | 45 | ||
4.1.3 | Individual elements of the compensation model | 46 | ||
4.1.4 | Validation of compensation model in connection with sample review | 58 | ||
4.1.5 | Calibration of the preliminary model-calculated result | 64 | ||
4.1.6 | Risk of undercompensation | 65 | ||
4.1.7 | Allocation of compensation amount for accounts with multiple debtors | 66 | ||
4.1.8 | The customer journey | 70 |
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4.1.9 | Our overall observations in relation to the bank's calculation of compensation | |||
and the payment plan | 71 | |||
4.2 | DCS business accounts | 72 | ||
4.2.1 | Customers, case types and issues covered by the compensation model | 72 | ||
4.2.2 | The bank's handling of business accounts through the compensation model | 76 | ||
4.2.3 | Validation of the compensation model and handling of the risk of undercompensation | 79 | ||
4.2.4 | Distribution of compensation | 83 | ||
4.2.5 | The bank's individual review of business accounts | 83 | ||
4.2.6 | The customer journey | 84 | ||
4.2.7 | Our overall observations in relation to the bank's calculation of compensation | |||
and the payment plan | 84 | |||
4.3 | The individual review of complexity level 1-6 DCS personal accounts | 85 | ||
4.3.1 | Customers, case types and issues covered by the compensation calculation through the | |||
individual review | 86 | |||
4.3.2 | The bank's performance of the individual review | 87 | ||
4.3.3 | Allocation of compensation | 89 | ||
4.3.4 | The observed error rate and the risk of undercompensation | 89 | ||
4.3.5 | Our overall observations in relation to the individual review | 91 | ||
5. | COMPENSATION REGARDING PF CLAIMS | 92 | ||
5.1 | Introductory remarks | 92 | ||
5.1.1 | Overview | 92 |
5.1.2 General information about the bank's approach to compensation
of customers in the PF system | 94 | ||
5.1.3 | The bank's hypothesis | 98 | |
5.2 | The PF population and the division into case types | 99 |
5.2.1 Which customers, claims, case types and issues are covered by the
bank's compensation calculation plan | 99 | ||
5.3 | Claims handled on the basis of the model-based compensation calculation | 103 | |
5.3.1 | The bank's validation of the model-based compensation calculation | 103 | |
5.3.2 | The deterministic model (recalculation of the starting balance) | 105 | |
5.3.3 | Early exit | 108 | |
5.3.4 | Special information on agreement logic | 109 | |
5.3.5 | Calculation model (calculation of compensation) | 110 | |
5.3.6 | Calibration and corrections | 111 | |
5.3.7 | Distribution of compensation | 112 | |
5.4 | Sample check | 113 | |
5.4.1 | Introductory remarks | 113 | |
5.4.2 | Manual recalculation of the starting balance and data validation | 114 |
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5.4.3 | The PF claims recalculator (compensation calculation) | 118 | |
5.4.4 | Summary | 123 | |
5.5 | Risk of undercompensation | 123 | |
5.5.1 | The basis of the risk analysis and the selection and representativeness of the | 123 | |
sample check | |||
5.5.2 | Calibration | 125 | |
5.5.3 | Analysis of the bank's risk figures | 126 | |
5.6 | Individual recalculation | 130 | |
5.6.1 | Individual recalculation of amounts exceeding DKK 100,000 | 131 | |
5.6.2 | Individual review upon request from customers | 132 | |
5.6.3 | Summary | 133 | |
5.7 | Our overall observations regarding the bank's calculation of compensation | 134 | |
5.7.1 | Claims without payments (about 30,300 claims) | 134 |
5.7.2 Claims handled on the basis of the model-based compensation calculation (approximately 8,100 claims)
134 | ||||
5.7.3 | Claims handled through the individual review (about 700 claims) | 135 | ||
6 | STATUS OF ESTATE CASES | 136 | ||
6.1 | Overview of estate cases | 136 |
6.2 Status of the bank's work on compensation for the individual case types in the estate case
segment
138 | |||
6.2.1 | Estates of deceased persons without dividend | 138 | |
6.2.2 | Debt relief | 139 | |
6.2.3 | Bankruptcy estates with dividend and estates of deceased persons with dividend | 141 | |
6.2.4 | Bankruptcy estates without dividend | 143 | |
6.2.5 | Bankruptcy of former customers | 143 | |
6.2.6 | Reconstruction | 144 | |
6.2.7 | Forced sale | 144 | |
6.2.8 | Liquidation | 145 | |
6.2.9 | Compulsory composition | 145 | |
6.2.10 | Mixed segments | 145 | |
6.3 | Time schedule for the bank's future work on compensation | 146 | |
6.4 | Cross-issue observations | 147 | |
6.4.1 | The bank's decision to disallow certain claims due to time-barring | 147 | |
6.4.2 | Tax compensation | 148 | |
6.4.3 | Risk of loss as a result of the bank's case processing time | 149 | |
6.4.4 | The bank's filing of bankruptcy petitions | 149 |
7. THE BANK'S HANDLING OF ADDITIONAL ISSUES NOT COVERED BY THE
COMPENSATION MODEL | 150 | |
7.1 | Overview of additional issues and errors | 150 |
7.2 | Additional issues considered in this report no. 5 | 151 |
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7.3 Additional issues where the bank has compensated customers through separate payment of
compensation | 152 | |||
7.3.1 | Additional issue no. 10 | - Failure to negotiate estate agent fees (Home) | 152 | |
7.3.2 | Additional issue no. 16 | - the bank's mortgage deed system ("MDS") | 154 | |
7.3.3 | Additional issue no. 19 | - Recognition of overcollected amounts | 157 | |
7.4 | Additional issues that have not resulted in losses for the affected customers | 158 |
7.4.1 Sub-issue 6.c - Different late-payment rates in the DCS system before
and after 2010 | 158 | ||
7.4.2 | Additional issue no. 21 | - Deleted customer data | 159 |
7.4.3 | Sub-issue 8.b - Collection of too high legal costs | 160 | |
7.4.4 | Additional issue no. 18 | - Temporary payment agreements | 160 |
7.4.5 | Sub-issue 26.f - Guarantees that are written off over time | 161 |
7.4.6 Additional issue no. 35 - Errors in the registration of time-barring in the DCS system 162
7.4.7 | ORIS 164265 - Differences in calculated interest in the DCS system | 163 |
7.4.8 | ORIS 166446(d) - Interest calculation in repayment arrangements in the PF system | 163 |
7.4.9 | ORIS nr. 171177(b) - Realkredit Danmark's acquisition of properties in forced sales | 164 |
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1. INTRODUCTION AND BACKGROUND
1.1 Introduction
In 2019, Danske Bank A/S ("the bank") discovered a number of errors in its debt collection systems. As a result of these errors, the bank's customers had been subject to overcollection for a number of years. In addition, the errors led to a number of derived consequences, including incorrect reporting to the Danish tax authorities and incorrect reporting of customers to a credit information agency.
Against this background, the Danish Financial Supervisory Authority (the Danish FSA) issued a number of orders to the bank, see section 1.2. By its decision of 26 November 2020, the Danish FSA issued an order to the bank to arrange for an impartial investigation, and the bank was ordered to extend and broaden the investigation by the Danish FSA's decision of 3 December 2021.
KPMG and Poul Schmith ("we" or "us") were appointed impartial reviewers and, since March 2021, we have been conducting an investigation into the bank's efforts to resume debt collection, including the bank's work to compensate customers for the errors occurred.
In the course of analysing the errors occurred, the bank identified a large number of additional issues. As a result, the bank decided in August 2022 to change its debt collection approach. Until then, the bank's approach to calculating compensation for the affected customers had been based on a "one-error-at-a- time" strategy. The new approach implied that, in its Olympia project, which involves making a single model-calculated compensation payment, the bank would compensate a large number of customers for a number of errors that were affecting or could be affecting the customers. In addition, the bank decided to cancel customers' debt subject to collection and set customer accounts to zero in a large number of customer cases.
In our report no. 4 of 4 June 2023, we dealt with compensation paid to a number of customers whose debt collection cases had been processed by the bank in the DCS debt collection system. We also dealt with the bank's plan for cancellation of debt and zero-setting of accounts for a number of the bank's customers.
This report no. 5 provides an update about the bank's execution of the plans for making compensation payments and for the cancellation of debt and zero-setting of accounts, which we dealt with in our report no.4 of 4 June 2023.
Furthermore, this report no. 5 deals with the bank's plan for and provides an update as of 31 December 2023 on the execution of compensation payments to an additional number of customers whose cases have been processed by the bank in the DCS debt collection system. Furthermore, the report deals with the bank's plan for and provides an update on the execution of compensation payments for a number of mortgage finance customers whose cases the bank processed in the PF debt collection system.
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Lastly, this report no. 5 provides an update about the bank's efforts to identify remaining errors or potential errors in the debt collection process which were not covered by the compensation scheduled to be paid as a part of the Olympia programme, either because the compensation is calculated and paid separately or because, according to the bank's analyses, the errors have not resulted in losses for the bank's customers. An update about the bank's overall work to calculate and pay compensation is provided in section 3 below.
1.2 Background
By its decision of 21 September 2020, the Danish FSA ordered the bank to stop collecting debt from customers who could potentially be affected by the errors in the debt collection process unless the risk of overcollection was insignificant. In addition, the bank was required to inform all customers who could potentially be affected by the errors that their debt collection cases may have been subject to errors.
By its decision of 26 November 2020, the Danish FSA ordered the bank to arrange for an impartial investigation.
By its decision of 3 December 2021, the Danish FSA issued an order to the bank to extend and broaden the impartial investigation. The purpose of the investigation was then to:
- monitor and assess the measures taken or to be taken by the bank in relation to the four root causes as well as the bank's analyses and measures in relation to the additional issues;
- monitor and assess the bank's measures to identify and communicate to customers affected by the four root causes and all additional issues identified as well as the bank's ongoing progress in these processes; and
- monitor and assess the implementation of future systems support in respect of the bank's debt collection systems, including assessing whether new systems and/or updates to existing systems would ensure that the bank will be able to conduct correct debt collection on the basis of accurate data in future.
By its decision of 25 April 2022, the Danish FSA issued an order to the bank to take the necessary measures to ensure that reporting to the Danish tax authorities in relation to debt collection cases involving customers who had received compensation in respect of the four root causes would be subject to correction. This also included customers who would receive compensation in the future and who therefore did not have outstanding debt to the bank.
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In addition, the bank was to communicate individually to those customers and to other customers who expectedly had an incorrect amount of debt reported to the Danish tax authorities in 2022.
Moreover, the bank was ordered to take measures to ensure that it would be able to provide an estimate of a customer's outstanding debt within a reasonable timeframe if a customer so requested. Lastly, the bank was to clarify the information presented on the bank's website regarding a status of its efforts to pay compensation in respect of root causes 1-4.
By its letter of 4 October 2022, the Danish FSA requested that we and the bank prepared a joint memorandum of understanding on future reporting on the debt collection case. The joint memorandum of understanding of 26 October 2022states, among other things, that the following areas are included as part of our investigation:
- The bank's overall organisation of its work in the debt collection case, including controls and risk management.
- The extent to which the bank's approach to compensating customers covers the errors identified.
- The bank's approach to the calculation and payment of compensation, including the use of the general compensation model, which, according to the bank, is expected to cover most of the errors identified.
- The bank's approach to correcting data in customer cases affected by the errors identified (the so- called "write back"). In this connection, the impartial investigation will cover the new approach, which, according to the bank, includes the zero-setting of a large part of debt payable by existing debt collection customers.
- The bank's reporting of information to the Danish tax authorities, including reporting of corrections etc.
- The bank's communication to its customers, including whether the bank communicates clearly so that customers can assess their position in relation to the bank.
- The bank's handling of customer requests for manual reviews and processing of customer enquiries and complaints, if any.
At the request of the bank, prior to preparing this report no. 5, we have drawn up a memorandum of understanding that describes the extent of the work by the bank which we report on in this report no. 5. This memorandum of understanding was sent to the Danish FSA on Tuesday, 28 November 2023.
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Our previous reports:
Prior to this report, we have submitted a total of four reports.
Our report no. 1 of 31 October 2021describes the bank's measures to stop the collection of debt with a not insignificant risk of overcollection, payment of compensation to the bank's customers and correction of other errors in relation to customer cases. The report was a snapshot of the bank's efforts in the debt collection case, the extent of which was still being developed at the time.
Our report no. 2 of 31 May 2022describes our investigations of the bank's efforts to correct errors and resume debt collection in the period from October 2021 to May 2022. At the time of submission of the report, the bank had calculated and paid compensation to customers affected by the four root causes where such compensation payments were possible. At that time, the bank had identified and "created" a total of 40 additional issues, for which the bank had only initiated or paid compensation for a small number of those cases. Like report no. 1 of 31 October 2021, the report was a snapshot of the bank's efforts in the debt collection case.
Our report no. 3 of 30 April 2023covers the bank's measures to establish future systems support in respect of the bank's debt collection process and the design and implementation of new business processes, procedures and related controls.
Our report no. 4 of 4 June 2023covers the bank's plan to compensate its customers for a number of errors by making a single compensation payment and the bank's plan to cancel debt and zero-set accounts for a number of customers. The report covers only parts of the bank's plan, as there was still no final plan for certain types of customers or cases. Furthermore, report no. 4 of 4 June 2023 had been submitted before the bank started to execute payments and communications to customers in the Olympia programme, and the report therefore did not comprise the actual execution, but only the bank's plan for such execution, including scheduled processes and controls etc.
1.3 Contents of this report no. 5
Our report no. 4 of 4 June 2023covered the bank's plan to compensate a proportion of its customers for a number of errors in the bank's system for collection of bank debt (DCS) by making a single compensation payment and the bank's plan to cancel debt and zero-set accounts for a number of customers.
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In this report no. 5, we provide an update on the bank's execution of compensation payments and cancellation of debt and zero-setting of accounts for customers comprised by our investigation in report no. 4 of 4 June 2023, and our investigation in this report no. 5 concerning these customers will cover a number of additional errors.
In addition, we describe the bank's plan for calculation and payment of a single compensation payment to a number of customers concerning accounts in the DCS system which were not dealt with by report no. 4 of 4 June 2023. For these customers, the compensation also covers a number of errors in the bank's debt collection process that may have resulted in overcollection.
We also describe the bank's plan for the calculation and payment of a single compensation payment for a number of the mortgage finance customers affected by a number of errors concerning claims handled in the PF debt collection system. The PF system is used to handle outstanding claims after a mortgaged property has been sold in connection with the collection of defaulted mortgage loans in Realkredit Danmark A/S (Realkredit Danmark). As the bank is responsible for the overall handling of errors in Realkredit Danmark's collection systems, we will in our description of the bank's plan for customers and claims in the PF system in most contexts refer to the "bank" as a collective term for the bank and Realkredit Danmark.
Finally, our investigation in this report no. 5 covers a number of errors not handled in the model-based solution for the calculation and payment of compensation. These are errors which are or will be handled by way of a separate compensation payment or issues in respect of which the bank's analyses have shown that they are not actual errors or that the customers have not suffered a loss as a result of the errors.
Section 3 below contains an overview of the bank's debt collection case, including a description of the errors and cases we have covered in previous reports and errors and cases we will cover in this report no. 5.
Section 3 also describes the errors and cases for which the bank has still not presented us with a complete model for the calculation and payment of compensation to its customers. Lastly, section 3 includes information about the bank's work to cancel debt and zero-set accounts and an update on the handling of debt in cases where the debt is not expected to be cancelled, and for which the bank must therefore later resume its collection on the basis of a correctly calculated claim.
In this report no. 5, the description of the bank's compensation models and objective thereof builds on the information provided in report no. 4 of 4 June 2023, including with respect to the underlying principles for calculating compensation for losses resulting from overcollection and time and tax compensation in this connection. We will not be addressing these basic questions again in this report no. 5, and reference is therefore made to section 5.3 of report no. 4 of 4 June 2023 for a more detailed description hereof.
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Danske Bank A/S published this content on 14 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 May 2024 07:47:03 UTC.