MPs: 'End excessive loan charges'

Published on Friday 7 August 2009 22:05

MPs have called on the City watchdog to crack down on the "high and excessive" charges being levied on people who fall behind with their mortgage.

The Treasury select committee also urged the Financial Services Authority to "raise its game" on enforcement and act faster against companies that do not treat consumers fairly.

The regulator was accused of putting the interests of lenders above those of consumers, by failing to name firms it was taking action against.

In a scathing report, the committee said it had been told that people in mortgage arrears could be charged as much as 35 for a letter or a phone call, while some firms charged 150 for a visit from a debt counsellor. It said these practices were "intolerable", and called on the FSA to take a much more robust stance in tackling the charges. It also urged the regulator and Office of Fair Trading to review them to ensure they were fair.

The committee said lenders should also be required to provide an itemised breakdown of the additional costs their arrears charges were supposed to cover, to shed light on whether they were reasonable and justified.

It said in many instances the charges appeared to go beyond the recovery of additional administrative costs and were, instead, a source of profit.

John McFall, chairman of the committee, said: "We suspect the small number of cases being brought against lenders making excessive arrears charges is the tip of the iceberg.

"This is why it is so important lenders are compelled to open up books and justify charges, while the FSA must be prepared to take decisive action."

The report also raised concerns that the FSA became concerned about unfairness in late 2007, but it was not until June 2009 that it said it was taking any enforcement action.

The committee criticised the FSA's "seemingly leisurely approach", as well as its current policy of only naming firms it has found guilty of wrongdoing once enforcement action has been concluded.

It said the balance between disclosure and protecting firms before they had been found guilty might have tilted too far towards the industry's interests.

Mr McFall said: "I am shocked at the time it is taking the FSA to complete enforcement action. During this time, many thousands of consumers will have suffered detriment and some will have lost their homes.

"The FSA must raise its game on the enforcement front and demonstrate it can take action speedily and decisively."

The committee also said there was evidence some of these lenders were using repossession as a first, and not last, resort, and called on the FSA and OFT to crack down on lenders who were breaking the rules and mistreating customers in difficulties.

The mortgage rescue scheme, in which people in arrears can sell their home to a social landlord and rent it back, also came in for criticism. Designed to help more than 6,000 families, it had so far helped six.

Philip Hammond, shadow chief secretary to the Treasury, said: "The behaviour of some mortgage lenders towards vulnerable homeowners has been completely unacceptable – yet the FSA has failed to intervene effectively."

An FSA spokesman said: "The FSA is currently conducting a wide-ranging review of all aspects of its mortgage regulation and will be publishing proposals this autumn."