£630k Fines Against Lender Over Mortgage Arrears Failings
The Financial Services Authority (FSA) has fined Essex-based mortgage lender Swift 1st Limited (Swift) £630,000 after failing to treat fairly some customers facing mortgage arrears.
Swift is the fifth lender referred to enforcement following the FSA’s thematic project on mortgage arrears handling. The FSA has also given final notices to GMAC-RFC, Kensington Mortgages, Redstone Mortgages Limited and DB Mortgages.
Swift has agreed to provide redress to customers who were in arrears. These customers were charged certain excessive arrears fees and charges. Swift will also provide redress to customers who redeemed their mortgages but whose interest on the redemption balance was miscalculated.
It is estimated that the total cost of the redress to customers will be approximately £2.35 million.
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 its dealings with customers in arrears.
In June 2009, the FSA published the results of a review which found continued weaknesses in the way specialist lending firms were handling mortgage arrears and repossessions.
In the case of Swift, the lender applied certain charges to its customers’ accounts that were in arrears which were excessive in that they did not reflect a reasonable estimate of the cost of administering an account in arrears, the FSA claimed.
These included 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, applied to customers’ accounts when Swift started legal proceedings.
Swift also applied excessive early repayment charges to the redemption figures of customers who were, or had been, in arrears. The FSA alleged that Swift failed to provide all its customers in arrears certain information on the options available to them.
Additionally, 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.
According to the FSA, Swift did not have adequate systems and controls in place to deal with early redemptions which resulted in some customers who redeemed their mortgages overpaying.
The FSA considered Swift’s failings as serious. Under FSA rules, a firm must consider the interests of its customers and ensure that they are treated fairly.
Swift’s failings continued over a significant period of time and impacted about 2,500 customers. 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.
Swift 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.