FSA may take lenders to court over fees

Natalie Martin
27-Aug-2008
The Financial Services Authority has found lenders are continuing to vary their mortgage fees, which may result in them being taken to court by the regulator.
The FSA has reviewed a number of mortgage contracts to assess whether lenders were properly interpreting its January 2007 statement of good practice on mortgage exit administration fees.

It is concerned about the fairness of some firms' terms.

It does not think it is unfair for firms to have terms in their contracts that allow them to vary their fees, provided those variation terms are drafted clearly and fairly, ie they set out the reasons for which they would vary their fees, and those reasons are fair.

It's concerned that some firms' variation terms are not fairly drafted, ie they either do not set out any reasons for which they would vary their fees, or their reasons are unfair.

A statement from the FSA, says: "We found about a third of the sampled firms have terms in their mortgage contracts that allow them to vary their charges which, in our view, does not comply with the law and principles set out in the statement and so may be unfair."

It adds: “Should it come to our attention that a firm's terms do not comply, we will consider the extent of the breach and what appropriate regulatory action to take. This may include, if sufficiently serious, enforcement or court action.

The FSA is writing to those firms whose mortgage contracts contain terms that, in its view, are unfair.

It expects them to amend or delete the terms in new contracts and not rely on them in contracts with existing customers.

It will continue to monitor closely whether firms' terms comply with the law and principles set out in the statement.

It reviewed major lenders who had been among the previous sample of firms and other lenders whose contracts we had not previously reviewed.

A statement from the FSA, says: “Disappointingly, the results of this further review suggest that the concerns we set out in our November 2007 follow-up have yet to be completely addressed.”

It found some firms do not provide any reason for variation, allow variation without clearly and unambiguously defining any specific 'valid reason' and without providing the consumer with both notice of the variation at the earliest opportunity and freedom to dissolve the contract immediately.

Firms also failed to provide an invalid specific reason for varying charges.

It adds: “We also found that some firms have terms in their mortgage contracts that do not comply with the law and principles set out in the Statement.

“So may be unfair because they put the burden of proof on customers, by requiring them either to prove that increases to charges were not reasonable, or to pay charges on an 'indemnity basis.”