The Committee said lenders had been using arrears charges as an alternative profit stream to the detriment of struggling families. It added that the upward trend in arrears and repossession is likely to continue for some time.

Although the committee said some mainstream lenders had made good progress in supporting customers through difficult times, it accused sub-prime, specialist and second-charge lenders of operating with a lack of ‘flexibility and forebearance’ when it came to customers who were struggling to pay their mortgages.

It noted some lenders were often charging high mortgage arrears fees, far beyond the reasonable costs of additional administration needed for arrears management. The committee has accused lenders of using struggling customers as a way to generate additional revenues.

John McFall, chairman of the committee, said: “We have heard evidence of charges as high as £35 from some lenders for simply sending a letter or making a phone call, and charges as high as £150 for a visit from a so-called ‘debt counsellor.’ Such practices are intolerable and are placing additional financial as well as emotional strain on those already struggling to keep a roof over their head.”

McFall added that the FSA was not decisive in the action taken against lenders who fail to treat their customers fairly. Despite signaling its concern about unfair treatment of mortgage borrowers in 2007, it did not take any enforcement action until June 2009.

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He commented: “I am shocked at the length of time it is taking the FSA to complete enforcement action against firms it suspects are breaking the rules. During this time many thousands of consumers will have suffered detriment and some will have lost their homes. The FSA must raise its game on the enforcement front and demonstrate that it can take action speedily and decisively where wrong doing is taking place.”

Jackie Bennett, head of policy at the CML, said the industry was fully engaged to help its customers through the recession where they have a good prospect of being able to get back on track and sustain their home-ownership in the long term.

“Lenders have worked hard to ensure that treating customers fairly is at the centre of their arrears management. This does not necessarily mean that consumers will not be charged, but it does mean that the charges will be a reasonable reflection of costs and that they will be applied in ways designed not to exacerbate the borrower’s financial problems.”