Bank of Scotland may have committed criminal fraud in how it dealt with some customers who fell into mortgage arrears, Northern Ireland's Attorney General claimed today.

John Larkin told the High Court in Belfast that the issue has been brought to the attention of the police.

His assessment came as lawyers for the bank announced they were dropping their appeal against a ruling that it had “unconscionably” double-billed some customers.

Earlier this year a judge held that its practice of restructuring and increasing monthly instalments plunged borrowers into depression.

His verdict came in three cases brought by the bank involving claims for house repossessions.

At the time High Court judge Master Ellison accused the bank of “having its cake and eating it”.

While he said there may not be any fraud involved, it was not regarded as fair accounting.

But in court today the Attorney General described the original verdict as “unduly tender” on Bank of Scotland.

Acknowledging he was making a highly unusual intervention in a private law action, Mr Larkin claimed there was evidence of criminal fraud under the relevant legislation.

Stephen Shaw QC, for the bank, contended that the Attorney General’s view was based on a misapprehension.

Mr Shaw also confirmed that the planned appeal against the original ruling was being withdrawn.

Three test cases were originally brought by the bank involving claims for house repossessions.

The court had to determine whether the lender can both consolidate mortgage arrears by increasing monthly instalments through a process known as capitalisation, and also rely on the arrears for possession proceedings.

Master Ellision held that mortgages should no longer be regarded as in arrears once capitalisation has taken place.

He said the bank’s practice of unilateral consolidation is much more longstanding and common than initially anticipated.

The bank’s reliance on extinguished arrears can be described as double-billing, he found.

“Unilateral consolidation with double-billing creates very real problems for borrowers, their advisers and the court,” he said at the time.

“To the extent at least of the double-billing, it is unconscionable.”

The practice was said to unfairly and confusingly distorts perceptions of affordability.

Borrowers in default are faced with increased monthly payments to deal with the arrears, along with a demand - and threat of repossession - for the immediate payment of the erstwhile arrears.

Following the decision to drop the planned challenge Mr Justice Deeny confirmed he was striking out the appeal.

Mark Orr QC, for one of the respondents Housing Rights Service, also successfully applied for costs.