FSA issues first ever fine for mortgage lender

The FSA has fined a mortgage lender for the first time for exposing its borrowers to financial loss.

GE Money Home Lending must pay £1.12m for having systems and controls which caused 684 borrowers to suffer financial loss.

The FSA says the fine, a first in the industry, sends out a clear signal to lenders that they must treat customers fairly and prevent them suffering financial loss where possible.

The customers concerned signed mortgage contracts subject to a clause where an amount of around £3,000 was withheld from the mortgage advance as a condition of the loan.

Usually the borrower was required to make specified repairs to the property concerned and the money would be retained for six months by the lender, but would still accrue interest.

However, the FSA found that the terms and conditions did not make it clear to customers that they would pay interest on the full mortgage loan, including retention monies.

Additional failures also meant the retained cash was not always paid to the borrower or used to reduce their mortgage loan after six months, and some continued to be charged interest on retention monies after the six-month period.

Margret Cole, director of enforcement at the FSA, comments: “The firm’s failings were serious because a large number of borrowers, including some with impaired or non-standard credit profiles, were put at risk of financial loss.

“The firm identified the systems and control failings in 2004, but despite internal recommendations that improvements be made, no corrective action was taken for more than two years.”

The firm did eventually take action and report the issue to the FSA, and has so far repaid over £7m in compensation to customers, which was a mitigating factor in setting the fine.

In a statement released today, Colin Shave, chief executive officer of GE Money Home Lending, says: “We regret the events which led to this situation and, although the number of affected borrowers was small compared to our overall customer base, we sincerely apologise to those who were affected.

“Since we reported the problem to the FSA, we have worked hard to ensure that customers affected have been fully refunded and compensated."

If you would like to comment on this story, contact:

John Bakie
Tel: 020 7484 9805
e-mail: John.Bakie@incisivemedia.com