Page last updated at 23:27 GMT, Friday, 7 August 2009 00:27 UK

MPs attack mortgage arrears fees

John McFall MP
John McFall MP said he was shocked by the slow speed of the regulator

A committee of MPs has attacked the way some mortgage lenders levy high charges on customers who fall into arrears.

The Treasury Committee said this practice was "intolerable" and demanded that the Financial Services Authority (FSA) put a stop to it.

The committee also said some lenders were breaking the rules by using repossession as a first, rather than last, resort with borrowers in arrears.

The FSA said it would publish proposals this autumn after a widespread review.

"The FSA continues to take a robust position with firms as soon as we have evidence of wrongdoing and also to ensure borrowers are treated fairly throughout the lifetime of their mortgage," said a spokeswoman.

But the MPs in their report said they were shocked at what they perceived to be the FSA's "leisurely" approach to enforcing the existing rules governing mortgage lenders.

"We have heard evidence of charges as high as £35 from some lenders for simply sending a letter or making a phone call, and charges as high as £150 for a visit from a so-called 'debt counsellor'," said John McFall, chairman of the committee.

"Such practices are intolerable and are placing additional financial as well as emotional strain on those already struggling to keep a roof over their head," he added.

Getting worse

The committee took evidence during a short inquiry in June and July.

The FSA and the OFT must get a grip on this problem
John McFall MP

It was told that nearly 400,000 homeowners in the UK were behind with their mortgage repayments by March this year.

Although the increase in repossessions had slowed down recently, the committee said it was sure the problem of arrears and repossessions would become worse in the future.

The main targets of the MPs' criticisms were the sub-prime and specialist lenders, some of whom, the MPs were told, had a deliberate policy of trying to repossess borrowers' homes as soon as they fell behind with repayments.

This is against the rules on treating custom fairly, which are supposed to be enforced by the FSA.

But the MPs said that in some cases, this was not happening.

"The FSA and the Office of Fair Trading (OFT) must get a grip on this problem and crack down on lenders who are breaking the rules and mistreating customers in arrears," said Mr McFall.


Just as alarming to the MPs were the stories they heard of some lenders imposing excessive extra fees for dealing with customers in arrears.

The fees, the MPs said, appeared to be a source of extra profit for the lenders, rather than merely covering the extra administrative overheads involved.

The committee demanded that the FSA and the OFT take action to eliminate excessive arrears charges and said all lenders should publish a breakdown of the fees they imposed.

The MPs took a distinctly dim view of the FSA's attitude to these problems.

They accused the financial regulator of taking far too long to investigate firms accused of treating borrowers unfairly.

"The FSA needs to start protecting consumers who have been made vulnerable by the recession and stop protecting the commercial interests of lenders trying to evict people from their homes," said Which? chief executive, Peter Vicary-Smith.

"The FSA must respond to the committee's condemnation of its leisurely approach to enforcement by immediately publishing the names of the firms it is investigating."


Four firms are now facing enforcement action by the FSA after an earlier inquiry lasting a year and a half.

But the MPs said the FSA's reluctance to name and shame them, until they were found guilty, gave the impression the regulator was more interested in protecting the reputation of the lenders than protecting their customers.

"I am shocked at the length of time it is taking the FSA to complete enforcement action against firms it suspects are breaking the rules," said John McFall.

"During this time, many thousands of consumers will have suffered detriment and some will have lost their homes," he added.

The committee of MPs said it also wanted an explanation from the government about why its mortgage rescue scheme had, so far, helped only six households, rather than its target figure of 6,000 families.

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