Lenders too quick to turn to repossession
Some mortgage lenders are using repossession as an alternative profit stream instead of as a last resort, a group of MPs has warned.
In a report out this weekend, the Treasury Select Committee said it was "extremely concerned" that some lenders are using repossession not as a tool of last resort, but instead as a first resort.
While the MPs recognise some charges are necessary to recoup additional administrative costs, they were concerned that in many instances such charges appear to go beyond that.
The Committee described these practices as "intolerable" and urged the financial regulator, the Financial Services Authority (FSA), and the Office of Fair Trading to get a grip on this problem and track down lenders that are breaking the rules.
John McFall, chairman of the Committee, says: "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.
"We suspect that the small number of cases being brought against lenders making excessive arrears charges are merely the tip of the iceberg. This is why it is so important that lenders are compelled to open up their books and justify their charges, while the FSA must be prepared to take decisive action where it finds evidence of wrongdoing."
Peter Vicary-Smith, chief executive of Which?, agrees: "The last thing you need if you're struggling to pay your mortgage is to be hit with excessive charges, yet that is what some lenders are doing to their customers.
"The FSA needs to start protecting consumers who have been made vulnerable by the recession and stop protecting the commercial interests of lenders trying to evict people from their homes.
"The FSA must respond to the Committee's condemnation of its leisurely approach to enforcement by immediately publishing the names of the firms it is investigating," he adds.
The FSA released a statement saying it will respond in full to the report in due course, adding that it continues to take a robust position with firms as soon as it has evidence of wrongdoing and also to ensure borrowers are treated fairly throughout the lifetime of their mortgage.
A homeowner’s worst nightmare; repossession is an action of last resort by mortgage lenders to recover money from borrowers that have failed to keep up with repayments on their mortgage or other loan secured on their home (see secured loan). Repossession is a legal procedure that has to go through several processes before the homeowner is evicted and the property reposed. These are: if a borrower keeps defaulting; the lender applies for a solicitor’s notice; the lender instigates possession proceedings through the court; at the court hearing a possession order is granted and sometimes a possession warrant; a bailiff is appointed and an eviction notice issued at which point the homeowner has two to three weeks to vacate the property.
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.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.