Mortgages: UK's FSA fines lender for "poor treatment" of customers

The fine is GBP630,000. The UK's FSA has recently announced that it intends to apply more substantial fines. This is, in the context of Redstone, very substantial.

But the fine is not the whole story: Redstone has agreed to compensate certain customers - with a total bill amounting to an estimated GBP500,000.

According to the FSA's statement:

The FSA has identified a number of serious failings by Redstone which occurred between 1 January 2007 and 5 August 2009 in relation to its mortgage arrears handling processes and in its dealings with customers in arrears.

These include:

• Failing to ensure mortgage servicing staff acting on its behalf had adequate understanding of treating mortgage arrears customers fairly;
• Focusing on reducing arrears to less than two months, regardless of the customer’s personal and financial circumstances;
• Having written policies that led, in some cases, to the unnecessary use of litigation to secure arrangements to pay;
• Sending repetitive, excessive and confusing correspondence; and
• Applying four 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;
• Including arrears fees and charges in the balance on which an early repayment charge was calculated;
• Charging for field counsellor visits in full to some customers who had not been properly informed of the timing of the visit and/or of their right to refuse or cancel the visit; or who should have been charged a reduced rate cancellation fee; and
• A fee for litigation activities, which was applied even when such activities were taken by Redstone unnecessarily.

Under FSA rules, a firm must pay due regard to the interests of its customers and ensure they are treated fairly. Redstone was in breach of these rules for a significant period of time.

The FSA has launched a consultation relating to consumer mortgages.