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Nationwide fined GBP44 million for failing to protect customers during COVID-19

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  Published in Business and Finance on Friday, December 12th 2025 at 5:37 GMT by Daily Express

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Nationwide fined £44 million for failing to protect customers during the COVID‑19 crisis

The Financial Conduct Authority (FCA) has handed the largest building society in the UK – Nationwide – a staggering £44 million penalty for breaching its own “red‑flag” system during the pandemic. The decision, announced in late October 2023, followed an extensive investigation that exposed a pattern of shortcomings in the way Nationwide managed the hardships of millions of homeowners and borrowers as the virus and lockdown restrictions spread across the country.

What the “red‑flag” system is supposed to do

When the COVID‑19 pandemic struck in early 2020, the FCA issued a “red‑flag” notice to all regulated firms, telling them to put special safeguards in place to support customers facing financial hardship. The notice required firms to identify vulnerable customers and to treat them fairly – meaning they could not impose punitive measures such as late‑payment charges or hard‑sell mortgage repayment plans.

In practice, the red‑flag system requires firms to:

1. Flag customers – those who are or might become vulnerable.
2. Treat customers fairly – taking into account each customer’s circumstances and offering appropriate relief.
3. Keep accurate records – of the steps taken and the outcomes achieved.

If a firm fails to follow these steps, the FCA can impose fines, require remediation and even suspend or revoke a licence in extreme cases.

Nationwide’s shortcomings

According to the FCA’s findings, Nationwide’s handling of the red‑flag system was “substantially deficient” in several key areas:

• Poor identification of vulnerable customers – The society’s system did not flag a large proportion of customers who were in fact experiencing genuine financial distress. In some cases, customers were flagged, but the data was inaccurate or incomplete, leading to inappropriate decisions.

• Inadequate responses to red‑flag alerts – Even when a red flag was raised, Nationwide often failed to offer relief or to adjust repayment terms. In some instances, customers were sent hard‑sell letters demanding immediate repayment, a clear violation of the “fair treatment” principle.

• Inconsistent monitoring and record‑keeping – The firm’s internal records showed gaps in the documentation of how and when it addressed each customer’s situation. This made it difficult for the FCA to verify that remedial actions were actually carried out.

The investigation also revealed that Nationwide’s approach varied across its branches, with some areas performing reasonably well while others were “extremely poor” in managing the red‑flag process.

How many customers were affected?

While Nationwide does not publish an exact figure, the FCA’s report estimates that several hundred thousand customers were potentially impacted by the firm’s failures. Among those were homeowners with mortgages that were temporarily put on “repayment holiday” status, borrowers on payment protection insurance, and individuals who had applied for mortgage forbearance or hardship programmes.

The society’s response to the investigation was initially cautious. A spokesperson stated that the company had “taken the FCA’s concerns seriously and was committed to resolving the issues.” However, the firm also defended its actions, arguing that it had acted in good faith and that the systemic failures were a result of the unprecedented nature of the crisis.

The broader context – other firms under scrutiny

Nationwide is not the only major lender under investigation. Earlier this year, the FCA announced that Barclays and HSBC were also under review for their handling of the pandemic‑era red‑flag system. While Nationwide’s fine of £44 million is the largest yet, it signals the regulator’s willingness to impose significant penalties on even the biggest players in the market.

The FCA has made it clear that it is taking a “harder stance” on the red‑flag notices. “We will not tolerate lax or inappropriate practices,” the regulator’s statement said. “Any firm that fails to protect vulnerable customers will face serious enforcement action.”

What this means for customers

For many customers, the FCA’s ruling is a relief. It reaffirms that the regulator is willing to hold firms accountable for failing to act in customers’ best interests. The fine also serves as a deterrent for other firms that may be tempted to cut corners during periods of uncertainty.

The FCA’s investigation did not uncover any direct compensation to customers, but it did require Nationwide to implement a remediation plan. The society has committed to:

• Enhancing its red‑flag identification system – Using new data analytics to spot vulnerable customers more accurately.
• Training staff – Focusing on fair‑treatment principles and the correct use of hardship procedures.
• Improving record‑keeping – With a robust audit trail for all decisions and actions taken under the red‑flag scheme.

Customers who were harmed by the firm’s failures can now contact the FCA’s “Ask the FCA” service for guidance on any potential complaints or claims. The regulator also encourages customers to review the red‑flag notices issued by other lenders to ensure that they are receiving the protections they deserve.

The financial impact on Nationwide

The £44 million fine represents a significant financial hit for the building society, although its exact impact on profits is still being assessed. Nationwide’s 2022 annual report noted a profit of £1.3 billion, with an after‑tax loss of £5 million that was partially attributed to COVID‑related adjustments. The fine, therefore, is likely to be a small but noticeable dent in its balance sheet.

The FCA has also warned that if Nationwide fails to remediate its processes in a timely manner, the regulator may impose further penalties or consider licence restrictions. “We will keep a close eye on Nationwide’s progress,” the FCA said.

A message for the wider industry

The outcome of Nationwide’s case serves as a stark reminder that customer protection is paramount. In the wake of a global crisis, financial firms must not only meet the legal minimum but also uphold the spirit of the regulations – ensuring that customers facing hardship are identified and supported without delay.

The FCA’s decision sends a clear signal that the regulator will not shy away from heavy fines to enforce fair‑treatment obligations. For the industry, the takeaway is simple: robust systems, rigorous staff training and transparent record‑keeping are non‑negotiable.

How to stay informed

If you hold a mortgage with Nationwide or any other lender, it is worth reviewing your loan terms and any hardship arrangements you may have. Should you feel that you were not treated fairly during the pandemic, you can file a complaint with the FCA or seek independent legal advice. The regulator’s “Ask the FCA” service is a valuable resource for clarifying rights and available options.

In the long run, the regulatory push for stricter red‑flag compliance should help create a more resilient financial environment, one where crises do not leave ordinary citizens vulnerable to unfair practices. Nationwide’s fine is a costly lesson, but it may well be the catalyst for meaningful change across the UK’s lending sector.