Name: Bob Young
Company: Capital Home Loans
The fine is quite a substantial one and sends a warning shot across the bows of all lenders in terms of their arrears and possessions processes. It is likely that this particular action
will be followed by others, if we believe the rumours that the FSA is at the latter stages
of its investigations with other lenders.
Lenders must have a right to recoup the true cost of managing arrears from those borrowers who have failed to pay their monthly mortgage commitment. The important phrase here is ‘true cost’, as it seems some lenders have been taking the opportunity to make significant profits from those in arrears.
Profiteering needs to be stopped and it is good that the FSA is taking action. In GMAC-RFC’s case, the regulator has obviously decided that it was charging borrowers in arrears above the true cost of managing their mortgage, which is why many borrowers will be receiving refunds. The FSA has obviously decided to attach more focus to this issue through the Mortgage Market Review which insists on fair treatment of customers in arrears.
This is right, because borrowers should only be charged the real cost of managing their account, not an inflated one. It is however important that the FSA and the public understand there is a cost attached to managing delinquent accounts and this needs to be paid for by the person
causing the problem. The alternative is that mortgage costs across the portfolio have to
increase, effectively meaning that the good payer subsidises the poor payer – which is
also wrong.
Name: Brian Murphy
Company: Mortgage Advice Bureau
The fine handed out last week against GMAC-RFC certainly raised the bar. It follows close on the heels of another significant fine imposed against Swinton for serious failings over sales of
Payment Protection Insurance (PPI). It demonstrates that the FSA is serious
in ensuring all firms remain within its remit act and remain within the rules and
right spirit in their dealings with their customers.
I do envisage more penalties being imposed on other lenders if they are guilty
of imposing charges that are unreasonable and which do nothing but add to the
misery and impose further hardship on borrowers, many of whom are in arrears
through no fault of their own. I do not believe that anyone would expect a lender who is incurring additional costs as a result of a borrower going into arrears or repossession proceedings not to act to recoup those additional costs.
However, charges levied against these individuals should be commensurate with
the costs that the lender has incurred and should not be seen as a short cut route to
profiteering from vulnerable people.
The regulator is clearly demonstrating that it means business by imposing what is
to date a record fine. As we understand it, the fine was actually £4m, although this
was discounted. However, this represents more than half of the amount of money
that GMAC-RFC has been ordered to repay to affected borrowers and it suggests that
anyone else who is found to have acted in a similar fashion is likely to receive similar
censure.
Name: Michael Bolton
Company: Charterhouse Retirement Solutions
I certainly foresee more penalties because the industry was badly prepared for the downturn in the credit environment. On a practical level, the main problem was that in the good times, all lenders wound down their in-house arrears management teams, (if they had any such
teams in the first place), and third-party servicers did not invest in building these
functions. It is no wonder that the industry was caught out.
In theory, the high risk sub-prime lending in the UK will bear the brunt of the arrears spike as this lending was the preserve of the non-bank or specialist sector. Therefore this should lead to greater probability of TCF problems on arrears cases.
Overall though, the underlying issue of fairness is more relevant. The FSA has always made it clear that fees and charges for borrowers in arrears should not be a profit centre. It may be fair to cover your costs, but is it fair to lump in a lender ‘credit function’ to your cost base when calculatingarrears? Some lenders viewed it as legitimate to include the cost base of this
‘credit function’ within its costs. They then aimed to cover this cost from arrears
fees and charges. To be fair, this level of prescription was never specified by the FSA
at the time.
However, the FSA has always made it clear that lenders should not profit from
their arrears management function, and I am guessing that is where GMAC-RFC
overstepped the mark.
