Kensington Mortgage Company has been fined £1.2m and will pay out £1.1m to customers who it treated unfairly after they fell behind on their mortgage repayments, the City watchdog said today.

The Financial Services Authority (FSA) said the company, which prior to the credit crunch specialised in offering home loans to customers with poor credit histories, had levied "unfair and/or excessive charges" when borrowers fell into arrears.

It said that between 1 January 2007 and 31 October 2008, Kensington had concentrated on getting its customers to repay arrears over a short period of time rather than agreeing arrangements based on their circumstances and ability to pay. It had also failed to make sure its staff knew how to treat struggling borrowers fairly.

Three charges levied during that period were found to be unfair or too high:

• A fee for a returned direct debit which was charged regardless of how many times it had already been returned unpaid.

• A fee for a cancelled direct debit which did not reflect administrative costs.

• An early repayment charge on mortgage balances which included arrears fees and charges within that balance.

Kensington offered sub-prime and self-certification mortgages when the housing market was at its peak, but pulled out of those markets in November 2007. It recently introduced a loan for customers with county court judgments, but has denied it is moving back into sub-prime lending.

Kensington is now contacting around 16,000 customers who paid the fees to offer them redress. It said it would repay an average of £8.75 for cancelled direct debits, £25 where an administration fee had been charged for more than three bounced direct debits, and £37 for excessive early repayment charges.

Letters will be sent out by the end of May, and money credited to borrowers' accounts by the end of July. Customers who have moved to a new lender will be repaid by cheque, while those who have been repossessed will have the refund discounted from their outstanding debt.

In a statement the lender apologised to borrowers, but said its fees were "in line with the market at the time". It added: 

"However, we acknowledge that there were certain fees where it was felt that the charge did not accurately reflect the additional work and cost incurred by Kensington."

The fine is the second for a sub-prime mortgage company following an investigation by the FSA into specialist lenders. Last November Gmac was fined £2.8m and ordered to pay customers up to £7.7m in compensation for similar failings. Several other lenders are still being investigated.

When applying the fine the FSA said it had taken into account the fact that Kensington had made significant improvements to its arrears and repossession processes since the early part of 2008.

Margaret Cole, the watchdog's director of enforcement and financial crime, said: "This case should serve as a strong reminder to firms dealing with retail customers – especially customers in a vulnerable position such as those with mortgage arrears – that the FSA will take robust action where it sees that customers are not treated fairly."

Details of the repayments for customers are available on Kensington's website.

GMAC fined £2.8m for 'mistreating' mortgage customers

Sub-prime mortgage lender GMAC-RFC has been fined £2.8m for mistreating mortgage customers who fell into arrears and ordered to pay them up to £7.7m in compensation.

The Financial Services Authority (FSA) has issued one of its biggest ever fines to the US-owned company for its treatment of customers who had fallen behind on mortgage repayments or were going through repossession.

About 46,000 customers who were charged "specific excessive and unfair charges" between November 2004 and the end of August 

this year will receive letters from the lender, offering them compensation. GMAC, which has lent to a total of 310,000 customers, withdrew from the mortgage market in May last year but still has about 50,000 borrowers on its books.

The City watchdog said GMAC, which was an offshoot of car group General Motors, had been guilty of "serious failings" including:

• Excessive and unfair charges for customers that did not reflect administration costs.

• Proposing repayment plans that did not always consider a customer's individual circumstances.

• Inadequate training of mortgage servicing staff in the handling of arrears and repossessions.

• Issuing repossession proceedings before fully considering the alternatives.

The FSA said the case set a precedent because it concluded the investigation in a matter of weeks, with GMAC working with the regulator to agree a process which will see consumers receive redress as soon as possible.

The firm's agreement to settle quickly means it qualified for a 30% discount on the fine under the FSA settlement scheme. It would otherwise have been £4m.

In a statement, GMAC said: "We want to apologise to customers affected. We have worked openly with the FSA to review and revise our procedures for managing accounts in arrears.

"Whilst our arrears charges were in line with the market, in hindsight we fully accept that for certain fees our estimates of the costs were not proportionate to the additional administration actually required. We will be writing to customers who incurred these specific charges when in arrears and will recredit the charges plus interest."

The average compensation levels will be £117 for non-payment of a monthly mortgage by direct debit when in arrears, £14 for early repayment charges applied to arrears fees and charges, and £45 for overpayment of solicitor's instruction fees.

Customers who have been in arrears and currently have a mortgage with GMAC, or have remortgaged and remain at the same address, need take no action – the company will write to any customer who was charged one of the above fees since 1 November 2004. After that, borrowers who are still with the lender will have the compensation, plus interest, refunded to their mortgage accounts.

Customers who were in arrears and have subsequently moved should contact GMAC on 0800 030 4662 if they believe they were treated unfairly.

GMAC and other sub-prime lenders have often been criticised by debt charities for their lending practices and the way they handled customers who found themselves in difficulty.

Capitalise, a government-funded partnership that provides free debt advice in London, complained about GMAC after it started repossession proceedings against a 71-year-old who bought his council home through the right-to-buy scheme. GMAC lent a £75,000 mortgage costing £430 a month on the basis of a dubious application form, which claimed the pensioner was earning £24,000 as a bookkeeper. In fact, his income was £517 a month.

GMAC also ran into problems with its buy-to-let lending. Last year, Bradford & Bingley renegotiated an agreement with GMAC under which B&B was committed to buying packaged-up buy-to-let loans. The loans were particularly poor quality – the number more than three months in arrears jumped from 3.04% to 5.11% in the first half of the year, almost three times the level on loans originated by B&B itself.

The FSA also published figures which showed that complaints about arrears handling increased by 41% to 39,181 in the first six months of this year, compared with the second half of last year. Complaints about misleading advice rose by 19% to 207,967.

Complaints about general insurance increased by 19% to 334,443 in the first six months of this year, giving a total increase 

of 72% since the first half of 2006. The total number of complaints increased by 2% in the first half of this year, compared with the second half of last year.

Lenders who gave up the fight

After aggressively expanding into the British mortgage market, GMAC has now been forced to close its book to new business. 

Here are some other sub-prime lenders that have fallen victim to the credit crunch:

• Derbyshire Building Society was forced to announce a merger with its larger rival, Nationwide, in September 2008 after falling into difficulties. More than a quarter of its balance sheet was made up of adverse credit and sub-prime loans.

• Kensington Mortgages withdrew its entire mortgage range in November 2007, blaming the worsening squeeze on international money markets.

• GE Money, a subsidiary of General Electric, slashed its UK lending target from £3.4bn last year to £71m this year. It repossessed 2,080 homes by the second quarter of the year.

• GE Money was fined £1.1m in September 2008 and forced to compensate 5,500 customers after systems failings resulted in over-charges of £2.3m.

• Edeus called in the administrator and made chief executive Michael Bolton redundant last October after stopping lending in April 2008 because it could not securitise mortgages off its balance sheet.

• Southern Pacific Mortgage Ltd and Preferred Mortgages closed last year.

* The FSA last week included a ban on arrears charges when a borrower is already repaying, and ensuring firms do not profit from people in arrears among its reforms of the mortgage market.

 

Source: Guardian