FSA: Mortgage lenders failing on TCF

Some UK mortgage lenders continue to punish mortgage borrowers unfairly by pushing them on to higher Standard Variable Rates or making borrowers repay mortgages in-full for minor breaches, said the FSA.

The Financial Services Authority (FSA) has highlighted a raft of lender tactics, which it said is detrimental to consumers, including poor treatment of borrowers in arrears.

Problems highlighted include lenders moving consumers from their discounted initial rate deal to the firms' Standard Variable Rate (SVR), for minor breaches, possibly leading to payment shock.

Some lenders have also demanded immediate full repayment of mortgage loans after a minor change in consumer circumstances, said the FSA.

Several lenders including Chesham Building Society and Blemain Finance in 2010, National Australia Bank, In Retirement Services and Barclays stretching back to 2007, have already been forced to change unfair terms in consumer contracts.

In its first Retail Conduct Risk Outlook (RCRO) the report outlined how an economic downturn can impacts firm's treatment of its customers and offers the FSA insight to feed into its work and all regulatory changes.

Meanwhile, despite lower than expected arrears levels, the FSA said a number of problems remain in this area, primarily from specialist lenders.

The regulator said issues include unclear customer information, charging structures incompatible with treating customers fairly and fees which don't reflect administration costs.

The FSA said impaired credit lenders are much more inclined than mainstream lenders to impose a ‘one size fits all' policy and move swiftly to take possession, without establishing borrowers' individual circumstances.

It added these lenders' internal controls and training and competence arrangements were also "noticeably less developed" than those belonging to mainstream lenders.

It said there is anecdotal evidence that the terms of securitisation covenants are restricting their ability to treat customers in arrears fairly, said the FSA.

"We have taken enforcement action against mortgage firms where we identified breaches in our rules or principles," said the regulator.

It said this area needs increased vigilance, particularly if interest rates start to rise and or the economy deteriorates further.

Adair Turner, FSA chairman said: "The Retail Conduct Risk Outlook is a timely reminder of the consumer protection challenges facing the FSA, its successor bodies and financial firms over the coming years."