FSA fines fifth mortgage lender and forces £2.35m customer redress

The FSA has fined Essex-based mortgage lender Swift 1st Ltd £630,000 for unfair treatment of some customers facing mortgage arrears.

In addition, the lender has agreed to provide redress to customers of approximately £2.35m.

This will cover customers who were in arrears and who were charged certain arrears fees and charges the FSA found were excessive.

Swift will also provide redress to customers who redeemed their mortgages early, where it miscalculated the interest on the redemption balance.

Swift becomes the fifth mortgage lender to be fined over arrears handling, following action against GMAC-RFC, Kensington, Redstone Mortgages and DB Mortgages.

The FSA has identified a number of serious failings by Swift which occurred between June 2007 and July 2009 in relation to its arrears fees and charges and in dealings with customers in arrears.

Swift applied certain charges to its customers' accounts that were in arrears which were excessive as they did not reflect a reasonable estimate of the cost of administering an account in arrears.

These were:

• Arrears management fee: a monthly management fee applied to a customer in arrears;

• Default notice fee: a default fee applied when a customer's account fell into arrears;

• Unpaid mortgage payment fee: applied when a cheque, direct debit or standing order was not honoured by a customer's bank; and

• Litigation fees: fees applied to customers' accounts when Swift started legal proceedings.

In addition:

• Swift applied excessive early repayment charges to the redemption figures of customers who were, or had been, in arrears;

• Swift failed to send all its customers in arrears certain prescribed documents, providing information on the options available to them;

• Swift focussed on the collection of arrears without always proactively engaging with customers to establish an appropriate "Arrangement To Pay" based on their individual circumstances; and

• Swift also failed to have adequate systems and controls in place to deal with early redemptions which resulted in some customers who redeemed their mortgages overpaying.

The FSA said it considers Swift's failings are serious as a firm must consider the interests of its customers and ensure they are treated fairly.

Swift's failings continued over a significant period of time and impacted about 2,500 customers, the FSA found.

As Swift specialised in the sub-prime sector, a number of customers who already had an adverse credit status were put at further risk of financial detriment.

Tracey McDermott, acting director of enforcement and financial crime, said: "Firms must ensure they treat their customers fairly. Many of Swift's customers were already in a vulnerable position, having fallen into arrears on their mortgage payments, and they could ill afford excessive and unfair fees.

"The FSA will take robust action to ensure not only that firms are fined for such failings but also that they identify and compensate customers who have been disadvantaged. The costs of doing so are often much more than the fine."

Swift reported its failings in relation to early repayment charges and redemption balances to the FSA.

It also agreed to settle at an early stage and therefore qualified for a 30% reduction in penalty. Were it not for this discount the FSA would have imposed a financial penalty of £900,000.