The committee’s criticism of the FSA and the Office of Fair Trading for taking a “leisurely approach” to lenders who were not treating their customers fairly when they fell into arrears, especially those in the sub-prime and second charge (also euphemistically called secured loans) markets, is stinging and the FSA is told to get a grip.
The OFT is included in the criticism because, completely bizarrely, the Treasury, headed then by Gordon Brown, decided early this century that the regulation of residential mortgages should be split between the FSA for first charges and the OFT for second and subsequent charges because, according to the Treasury your home is not normally at risk with a second charge mortgage!
The FSA has sharpened up its act since Lord Turner was appointed chairman but nevertheless the case highlighted by the committee where the FSA took over 18 months until June this year to take to enforcement four lenders found to be breaking FSA rules when dealing with arrears cases demonstrates it has a lot still to do.
The select committee’s criticism of excessive fees charged by lenders for sending out arrears letters is reminiscent of the OFT’s action against credit card companies, where as a result the fee has effectively been capped at £12, and also their current action on overdraft fees. The principle on mortgage arrears letters appears to be very similar for the first letter, which is usually computer generated and dispatched untouched by human hand and without individual consideration by a human brain.
The committee points out that “in many instances such charges appear to go beyond the recovery of additional administrative costs and are being used instead as an alternative profit stream”. Its suggestion that “lenders should be required to provide an itemised breakdown of the additional costs their arrears charges are supposed to cover” is so obvious it is difficult to understand why the FSA and OFT have not already done this.
Where arrears extend beyond a month the lender may well incur additional costs in dealing with the matter and so an appropriate solution could be that subsequent letters could be charged at a fee which takes account of other identifiable costs as well as actually producing and sending the letter, but either there should be no charge for the initial letter or only a small nominal charge.
Few things annoy customers more than when, after contacting their lender about a problem, especially if it is a lender error, it is not resolved efficiently. A common problem is the lender claiming to have not received a letter and yet most lenders do not provide an email address for customers to use. Using email would resolve this problem and be more convenient for many customers. Some banks use secure email for other parts of their business, such as credit cards, and so why not offer the facility as an option for mortgages?
Like their customers, lenders are not perfect, although clearly some have a much better reputation for efficiency than others. When the lender turns out to be at fault after sending an automated letter, it hardly ever automatically pays its customer a fee for that customer’s time and effort in contacting the lender to resolve the problem. A good discipline would be that in the event of the lender being at fault the FSA should require them to automatically pay their customer at least the same fee they would have charged the customer for sending a letter to them.
Ray Boulger is senior technical manager at John Charcol.