Mortgage lender fined £1.12 million
Sub-prime mortgage lender GE Money Home Lending has been fined a whopping £1.12 million by the financial regulator for leaving nearly 700 borrowers at a financial loss.
The customers affected had mortgage contracts that were subject to a “retention” clause, meaning that around £3,000 was withheld from the mortgage as a condition of the mortgage loan. This typically occurred where the borrower was required to carry out specified repairs to the property.
GE Money’s terms and conditions stated that this money would be retained for six months, during which time interest would be charged on the loan and the retention. After six months, borrowers were supposed to be refunded the full amount including the interest paid on the rentention.
However, the FSA says GE Money did not make it clear to all customers that they would be charged interest and, due to faulty systems, refunds were not always paid to borrowers.
And in some cases, borrowers did not receive their retention money (plus interest) back, meaning they had effectively overpaid.
This is the first time the FSA has fined a mortgage lender in relation to its lending processes.
Margaret Cole, director of enforcement at the FSA, says: “The firm’s failings were serious because a large number of borrowers, including some with impaired or non-standard credit profiles, were put at risk of financial loss.
“The firm identified the systems and control failings in 2004, but despite internal recommendations that improvements be made, no corrective action was taken for more than two years.”
The FSA has previously fined GE Money for mis-selling payment protection insurance.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.