We’re all used to banks trying to make money from us wherever they can. But if you fall behind on your mortgage payments, perhaps close to losing your home, the last thing you need is the lender pouring salt onto your wounds by hitting you with unfair penalty charges. Yet that’s what most lenders have been doing for years and, despite lots of bad publicity, it’s continued.
Well, hopefully, yes. The Financial Services Authority (FSA) has today published its plans to get tougher with lenders and ensure borrowers who are in arrears get treated more fairly. The plans are open for feedback until 30 April with the final rules intended to be introduced in June this year.
What can we expect?
The key plans are that lenders should:
- Not levy arrears charges where a customer already has an arrangement in place to repay them by direct debit. If paid by alternative means, e.g. cheque, the lender can only charge fair admin costs.
- Take more account of an individual’s situation before hitting them with a repossession order – i.e. stop being so heavy handed.
- Not include arrears charges (and interest on them) within any early repayment charges.
- Keep records of all arrears correspondence (e.g. telephone, paper, electronic) for three years after the arrears have been cleared.
- Use arrears payments to clear the missed monthly payments, not charges.
- Provide simpler arrears statements.
The FSA also re-iterated that its current rules already state that lenders should not profit from arrears charges, they should simply cover the admin cost of writing a letter or making a phone call – i.e. if it costs them £12 and they charge you £30 that’s £18 too much.
How much do lenders charge?
Common arrears charges (there are others) currently charged by some lenders are shown below:
|Lender||1st arrears letter||2nd letter||3rd letter|
|Alliance & Leicester
|Bradford & Bingley
|Lloyds TSB C&G
|Royal Bank of Scotland
All good then?
Let's hope so. As is often the case, the FSA has been too late at taking necessary action. But provided the proposals come into force in undiluted form this June, and the FSA sucessfully enforces them, today's announcment can only be a good thing.
What can you do if you think you’ve been over-charged?
If you think your lender has charged you excessive mortgage arrears fees then complain to them in writing. State that you believe their charges to be in excess of fair administrative costs, a breach of rule 12.4.1 in the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB).
A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, a charge for arrears on a customer except where that charge is a reasonable estimate of the cost of the additional administration required as a result of the customer being in arrears.
If this gets you nowhere then take your complaint to the Financial Ombudsmen Service.