FSA fines mortgage lender £1.12m

The UK's Financial Services Authority (FSA) has fined mortgage provider GE Money Home Lending £1.12 million for systems and controls failings which resulted in hundreds of customers losing money.

Be the first to comment

FSA fines mortgage lender £1.12m


This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community.

The watchdog says 684 borrowers with retention clauses in their mortgage contracts lost a total of £2.3 million, although they have now been compensated.

The retention clauses saw around £3000 withheld from customers' mortgage advances for six months, normally when repair work needed to be carried out on the property. The retained money and accumulated interest should have been released to the customer at the end of the six months.

But the FSA says inadequate systems and procedures meant it was not always paid to borrowers or applied to their outstanding mortgage loan after the six months and the company continued to charge some customers interest.

Furthermore, when a mortgage with an outstanding retention was redeemed, the firm did not always deduct the retention monies and accumulated interest, meaning some borrowers overpaid.

The FSA also says the company's terms and conditions failed to make clear to all customers that they would be charged interest on the full loan, including the retention monies, during the six months.

GE Money Home Lending identified retentions failings in 2004 but the problem persisted and the firm did not promptly remediate all customers.

Margaret Cole, director of enforcement, FSA, says: "The firm's failings were serious because a large number of borrowers, including some with impaired or non-standard credit profiles, were put at risk of financial loss. The firm identified the systems and control failings in 2004, but despite internal recommendations that improvements be made, no corrective action was taken for more than two years."

The company has also reviewed non-regulated mortgage contracts with retention clauses from before 2004, when the FSA started regulating the market and has now paid 5245 customers redress of £7.04 million in total.

The FSA says that in setting the fine it took into account that the company reported the issue, commissioned an external review and has stopped using the retention mechanism. It also agreed to settle, therefore receiving a 30% reduction in the penalty.

Sponsored [Webinar] Payments Modernisation: What are Financial Institutions prioritising?

Comments: (0)

[Webinar] How AI is re-shaping financial servicesFinextra Promoted[Webinar] How AI is re-shaping financial services