Lenders Fined Over Unfair Costs!

by Mark Johnston

As the recession bites and unemployment soars, more and more home owners are finding it hard to keep up with their monthly mortgage repayments.

Once a borrower finds themselves in arrears many lenders begin to add excessive and unfair costs on to their already mounting debt, thus overcharging related to arrears becomes a huge problem, which is set to cause distress to hundreds and thousands of home owners in the years ahead. Therefore if this is not tackled soon tens of thousands of consumers could end up losing out while lenders boost their profits by billions.

The financial services authority (FSA) regulates the financial services industry and has 4 main objectives under the financial service and market act 2000: maintaining market confidence, securing the appropriate degree of protection for consumers, fighting financial crime and contributing to the protection and enhancement of the stability of the UK financial system.

Their code of conduct requires lenders to treat their customers fairly (TCF), however by large it seems many companies only pay ‘lip service’ to this concept with lenders living by quite different rules: PCF or profits come first.

The financial watchdog has been investigating mortgage lenders for treating borrowers unfairly. The financial service authority (FSA) has also been investigating lenders for levying excessive penalties to those in arrears.

From their inquires they ordered GMAC-RFC, which was the tenth largest mortgage provider before the credit crunch but who stopped offering new home loans in May 2011, to pay up to 114,000 borrowers compensation in October 2011 which was due to them after they were hit with unfair arrears fees.

The financial service authority (FSA) said that its investigations discovered a number of serious failings in GMACs dealings with its customer and they were therefore fined £2.8 million and told to repay more than £8 million back to their customers.

Sub prime mortgage company Kensington mortgages was another company to be fined £1.225 million for unfair treatment of its customers. The firm were also told to repay £1.1 million in excessive fees to customers.

The financial service authority (FSA) said “its management information focused on the performance of the firm’s mortgage book and the profitability of the business rather than on treating customers fairly”.

Kensington was established in 1995 and was the first sub prime lender to operate in the UK; in its peak in 2007 to 2008 they were lending approximately 39,000 mortgages a month. The company stopped taking on any new business in 2008 but has very recently re-entered the mortgage market.

This particular lender specialised in lending to people with a bad credit history and the self employed, both groups were high risk borrowers who were more likely than other lenders to fall behind with their payments.

Swift 1st limited were another company who specialised in the sub prime market that have been fined and will have to pay an estimated £2.35 million in customer redress.

The financial service authority (FSA) considered that swift’s failings were very serious and these failings continued over a significant period of time and impacted around 2,500 customers.

As swift was a sub prime mortgage provider most of their customers who already had an adverse credit status were then put at further risk of financial detriment.

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