On 31 August 2022, Danske Bank announced an accelerated and more expedient solution to the remediation of the systemic errors in the bank’s debt collection systems in Denmark. The decision was made because the complexity and scope of the errors in the bank’s debt collection systems had proven larger than originally supposed. This meant that the approach taken until then of reviewing each additional issue, one at a time, would result in a timeline for resolving the issues that extended beyond what we considered reasonable for the affected customers – both in relation to finally settling the individual customers’ claims for compensation and in relation to faster payment of compensation for potential overcollection.

Against this background, Danske Bank decided to set the debt of approximately 90,000 of the affected customers to zero and, on the basis of a model calculation, to pay compensation to the customers who were at risk of having been subject to overcollection.

The impartial reviewers tasked by the Danish Financial Supervisory Authority (the Danish FSA) with monitoring Danske Bank's work on solving its debt collection problems have just finished a report on the bank’s accelerated solution and the model calculation used for compensating the affected customers in Denmark.

Some of the conclusions drawn by the impartial reviewers are as follows:

“In general, we find that the bank has established an effective process for cancelling debt and setting to zero and closing accounts and that this process ensures that all relevant accounts are covered and that these accounts are processed correctly. We also believe that the bank has established adequate procedures to manage the risks involved in the implementation of the processes to cancel debt and set accounts to zero.”

Furthermore, we note that the impartial reviewers recognise that, with the accelerated solution, we are making every effort to reach a conclusion as to the customers’ claims for compensation, including that we disregard time-barring of customers’ claims against the bank and that customers, on the basis of the model calculation, are often offered compensation that is higher than the overcollection that may have taken place.

In this context, Danske Bank also recognises that the model does not cover all issues. However, these issues concern mainly small and specific customer groups. Danske Bank does not expect the remediation of these issues to delay the payment of compensation to the majority of the affected debt collection customers.

Accelerated solution progressing according to plan
We are working hard on implementing the accelerated solution, and the work is progressing as planned. At present, about 80% of the debt in approximately 90,000 active customer cases has been set to zero, and the work involved in paying compensation to the debt collection customers who may have been subject to overcollection has begun.

As previously announced, Danske Bank expects the debt in the vast majority of the remaining debt collection cases to be set to zero, and that the vast majority of the customers who may have been subject to overcollection will be compensated by the end of the year. In respect of the approximately 174,000 accounts included in the preliminary reporting to the impartial reviewers, Danske Bank expects that a total of about 47,000 affected debt collection customers will be compensated as a result of the errors in one of our debt collection systems. In addition, a number of other debt collection customers will receive compensation as a result of errors in the collection system used to collect defaulted debt on behalf of Realkredit Danmark. This compensation will also be paid out during the second half of 2023.

During the period when the Danish FSA has tasked the impartial reviewers with monitoring Danske Bank’s work, we have decided to exclude 759 cases from the scope of the model. The purpose is to calculate the cases individually as a lack of data may lead to an incorrect model output.

The choice of the accelerated solution, which is based on a data-driven model calculation, means as previously announced that we give priority to closing the relevant cases as quickly as possible. This means that Danske Bank, in general, overcompensates the affected debt collection customers on the basis of the model calculation. However, there is small risk that a few debt collection customers will be undercompensated. In particular, this risk applies to cases transferred to the flawed systems prior to 2004 when data was of a poorer quality. All debt collection customers receiving compensation will be informed of the risks involved in the model calculation. We will also inform them of what to do if they believe that the bank’s conclusion on compensation is incorrect.

Since it cannot be ruled out that the setting of debt to zero in special cases may have tax implications, we will inform the customers separately about tax consequences.

The accelerated solution does not give rise to additional impairments or provisions than those already communicated.

Work on normalising debt collection is progressing
As previously stated, we have entered a cooperation with the Lowell debt collection agency on debt collection in Denmark. To ensure a robust resumption of debt collection, the cooperation with Lowell and the transfer of customer cases to Lowell will increase gradually.

In their report no. 3, the impartial reviewers recognise the bank’s work to resume debt collection and the chosen model entailing cooperation with Lowell and the implementation of a new standard debt collection system. We take note of the impartial reviewers’ perspective that the bank could have made decisions regarding restart somewhat faster.

The impartial reviewers’ report no. 3 is available here and report no. 4 here plus appendix to report no. 4  (Danish)