UK mortgage company fined over unfair treatment of customers in arrears at height of recession

Written by Ray Clancy

Tuesday, 13 April 2010 12:15

A UK mortgage company has been fined £1.225 million for unfair treatment of some customers in arrears and will have to pay out an estimated £1.066 million in compensation.

The Financial Services Authority (FSA) announced it has fined Kensington Mortgage Company Limited after it identified a number of serious failings by the company between 1 January 2007 and 31 October 2008 in relation to its mortgage arrears handling processes and in its dealings with customers in arrears.

These included failing to ensure mortgage servicing staff acting on its behalf had adequate understanding of treating mortgage arrears customers fairly and concentrating on the repayment of mortgage arrears over a short period of time rather than agreeing an arrangement to pay the arrears based on the customer’s individual circumstances.

It also applied charges to customers’ accounts that were unfair and/or excessive. These were a fee for a returned direct debit which was charged regardless of how many times the direct debit had already been returned unpaid; an excessive fee for cancelled direct debits which did not reflect administrative costs; and an early repayment charge on mortgage balances which included arrears fees and charges within that balance.

The firm also failed to take reasonable care to organise and control its affairs responsibly and effectively, and to ensure adequate risk management systems. Its management information focused on the performance of the firm’s mortgage book and the profitability of the business, rather than on treating customers fairly, the FSA 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,’ said Margaret Cole, director of enforcement and financial crime at the FSA.

‘Retail firms which fail in their obligations to customers should expect not only a substantial fine but also that they will have to pay back customers who have been disadvantaged,’ she added.

Kensington issued a statement in which it apologised to all those customers who were affected. ‘We are working to redress those customers affected as quickly as possible.
This was a retrospective investigation into arrears processes and our charges were in line with the market at the time. 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. We no longer charge these fees and will be writing to customers who have been affected,’ the statement said.

It added that customers who think they may be due redress do not need to take any action now, as Kensington will be contacting those customers who have been affected by 31st May