Kensington's borrowers were at high risk of falling behind with payments
Sub-prime mortgage company Kensington Mortgages has been fined £1.225m by the financial regulator for treating borrowers who were in arrears unfairly.
The Financial Services Authority (FSA) has also told the firm to repay £1.1m in excessive fees to those customers.
Kensington had levied three types of fee that the FSA said were unfair or excessive, and it was too aggressive in trying to get its money back.
The company said it was sorry and would repay the money promptly.
"Kensington would like to apologise to all those customers who were impacted by these charges and would like to reassure you that we are working to redress those customers affected as quickly as possible," the firm said.
After an investigation last summer, the Parliamentary Treasury Committee said the way some lenders profiteered by levying extra charges on people in arrears was "intolerable" and demanded that the FSA take action.
Subsequently the GMAC-RFC mortgage lender was fined £2.8m for mistreating customers in arrears and had to repay £7.7m, plus interest, to 46,000 of its borrowers.
In the case of Kensington, the FSA found that between January 2007 and the end of October 2008 the firm's staff had focused on getting customers to repay their mortgage arrears as quickly as possible, rather than agreeing a repayment schedule they could afford.
The lender had also imposed three types of fee that were unfair or excessive:
• a fee if someone's direct debit bounced, which was charged no matter how many times the direct debit had been bounced before
• a fee for three or more cancelled direct debits that was higher than the the real administrative cost incurred by the lender
• a fee for early repayment of a mortgage that was also levied on the accumulated arrears fees and charges that had been imposed on the borrower.
The FSA said Kensington's poor treatment of its customers had not been the result of a deliberate or reckless breach of the rules on treating customers fairly.
But the firm's actions had still been serious, with the blame lying mainly with senior management who had failed to train their staff properly.
"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," the FSA said.
Kensington was established in 1995 and was the first sub-prime lender to operate in the UK.
It specialised in lending to people with bad credit histories and to the self-employed who had to "self-certify" that they could afford their mortgages.
Both groups were high-risk borrowers who were more likely than ordinary bowers to fall behind with their repayments.
At its peak in 2007 and 2008 Kensington was lending 39,000 mortgages a month.
The company stopped taking on any new business in early 2008 but has recently re-entered the mortgage business, lending only via mortgage brokers and to people who have only small amounts of bad debt in their credit histories.
Money will be repaid to anyone who was charged the excessive fees after 1 November 2004 and all the affected customers should be contacted by 31 May 2010.
The firm has set up a helpline and 8% interest will be paid on top of the returned fees.