Mortgage lenders warned over repossessionsBorrowers with arrears must be handled fairly

28 November 2008

The FSA warned mortgage lenders today to treat customers in arrears fairly or face action from the regulator.

The Financial Services Authority has written to the chief executives of all mortgage lenders giving them until January 31 to ensure that people in arrears or facing repossession are being treated in accordance with its rules.

It is the second warning letter it has sent in recent months, and follows an earlier review which found "weaknesses" in arrears and repossessions handling, particularly among firms lending to people with impaired credit histories.

Specialist mortgage lenders criticised

The review found that while mainstream lenders were largely complying with its requirements, specialist lenders were often adopting a "one size fits all" approach, focusing too strongly on recovering arrears, without taking into account a borrower's circumstances.

It also found that lenders in this sector were too ready to take court action against borrowers.

The research also found that lenders in general did not pay enough attention to borrowers' individual circumstances, while they could also offer them more options to resolve their arrears problem.

It added that they sometimes imposed charges in circumstances that could lead to customers being treated unfairly, while they did not exercise "sufficient oversight" of third parties handling arrears and repossession cases on their behalf.

Jon Pain, FSA retail managing director, said in the letter: 'Conditions in the mortgage market are difficult and it seems likely that these conditions will persist for some time.

‘In such a challenging operating environment, it is particularly important for senior management to ensure the fair treatment of customers, including when they go into arrears.’

Mortgage lenders need to review arrears policy

The FSA is calling on mortgage lenders to review their current arrears policy and their management practices and procedures in this area critically.

The FSA requires firms to have a written policy setting out how they will deal fairly with people who are in arrears, specifying that they will repossess a home only as a last resort.

The number of homes being repossessed is expected to rise sharply next year as the economy worsens and unemployment rises.

 

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