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 fine comes following a Financial Services Authority (FSA) investigation into GE Money, after 684 borrowers suffered financial loss in excess of £2.3 million before any redress was paid to them.
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.