FSA proposes better protection for homeowners

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By Mark Mitchell
Know Your Money Editor

The Financial Services Authority (FSA) has made new proposals which should be of benefit to homeowners who fall behind with their mortgage.

Currently customers who are in arrears face charges and potentially repossession, but the City watchdog plans to ensure that repossession becomes a last resort and put an end to charges of up to £60 a month, even after the borrower has entered an arrangement to repay the debt.

There has also been criticism of lenders and third party administrators after some groups were found to be charging homeowners in arrears of up to £150 per visit from a debt counsellor and £300 for instructing a solicitor.

What do the proposals mean?

As part of the proposals revealed on Tuesday (January 26th), firms will no longer be able to impose monthly arrears charges to consumers with a repayment plan in place. Consumers' payments must be allocated to clearing their arrears first, before they are used to meet charges.

The FSA is also calling on firms to record all telephone calls about mortgage arrears and to keep these for three years.

The Council of Mortgage Lenders' latest figures revealed that at the end of September, approximately 194,600 people were in arrears of at least 2.5 per cent of their outstanding mortgage.

Adding early repayment charges on to arrears charges or charging interest on the fees will also be stopped.

Lesley Titcomb, the FSA director responsible for the mortgage sector, said: "Today's proposals underline the standards that firms must meet and will help to ensure that homeowners in financial difficulties are treated fairly.

"Lenders need to be in no doubt of their obligations to customers who fall behind with payments, and must realise that such circumstances are not an opportunity to create further profits."

Good news for consumers?

More than 80,000 homeowners in mortgage arrears could receive millions of pounds compensation for unfair charges, Times Money has suggested.

The website suggests that customers could be due refunds of late-payment fees following the FSA crackdown.

Specialist lender Gmac-RFC, was recently fined £2.8 million and forced to return £7.7 million to borrowers after it was found guilty of unfair treatment of customers between October 2004 and November 2008.

The fine was partly due to the £45 a month that the lender charged borrowers who fell into arrears. The FSA called the charges "excessive" and stated that they were not relative to administration costs.

Cerris Tavinor, a spokeswoman for the watchdog, said: "If borrowers are worried about their situation, they can make formal complaints to that lender. Anyone worried about arrears, getting into arrears and how arrears are being managed can ring our consumer contact service to get more information about the help that is out there."

She added that if there is evidence that a firm is acting unfairly, then it will be investigated and the appropriate action taken.

The FSA is yet to take action across the board but borrowers should be aware that they can make a complaint to their mortgage adviser.

All FSA-regulated firms must acknowledge a complaint within five days and come to a decision within a period of eight weeks.

If customers do not receive a reply or find that the conclusion is unsatisfactory, then a complaint can be made to the Financial Ombudsman Service which is a free service set up to settle complaints between consumers and financial service companies.

A decision is usually made by the service but in cases where this fails, it can be passed on to an ombudsman and potentially go as far as court.

David Hollingworth, of mortgage broker London & Country, said: "Debt charities could be invaluable as a first port of call in establishing what action borrowers may be able to take.

"If the property has not yet been repossessed, then clearly the first concern is to avoid the need for such a serious course of action."

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