Parliament demands FSA action on arrears handling

The continuing debate on specialist lenders’ arrears management intensified last week, after City Minister Lord Myners called for a crackdown on charges levied by lenders when borrowers fall into mortgage arrears.

Appearing before the Treasury Select Committee - as part of its inquiry into mortgage arrears and access to mortgage finance - Myners warned that the FSA should pay serious attention to the fees in its review of the mortgage market due in autumn.

He told the committee: "I do have a concern that there is a risk that these charges could be excessive. It is at the margin of the business, but it is at the margin that the mischief is being done."

Myners described the charges as an example of lenders being "short-sighted".
"If they have a borrower who is in a distressed condition, unable to service their mortgages, experiencing negative equity, to pile additional charges on a body which is already finding it difficult to sustain the weight is a very foolish and short-term thing to do."

Jon Pain, managing director of retail markets at the FSA, says it has clear rules on charges, which could only be a recovery of costs and should not allow a firm to generate a profit. However, Pain did admit that it found some charges in the specialist market were "disproportionate".

Labour MP John Mann asked the regulator why nothing had been done to address complaints about Kensington and GMACRFC's arrears handling processes, with the committee revealing that it had received a number of complaints relating to arrears charges from both lenders.

Mann says he had previously highlighted the issue as a major problem in the market. He added: "I complained about Kensington Mortgages 18 months ago, why have I heard nothing back?"

The FSA's most recent review found continued weaknesses in the way specialist lending firms and third party administrators were handling mortgage arrears and repossessions, with the regulator admitting it was now investigating the conduct of four unnamed lenders.

Robin Gordon-Walker, spokesperson for the FSA, refused to be drawn on which lenders were currently being investigated.

He adds: "The pool of lenders involved is very small, and people are bound to speculate. Obviously, we cannot say who they are."