Exit fees debacle could have long-term effects

So, the cat is out of the bag. The deadline has come and gone and the exit fee debacle is over. Well, not really.

Those lenders that shamelessly hiked their fees put the industry under pressure.

Consumer groups and campaigning parties have been able to strike an easy blow at the soft underbelly of UK mortgage lending as a result.

So what happened? Lenders upset tens of thousands of customers – some of them long-term clients – by overcharging exit fees. This wound up the national press and gave it the opportunity to put the boot in.

The guilty firms continued to break the law to the extent that the Office of Fair Trading waded in. This eventually triggered a Financial Services Authority review. You couldn’t make it up.

When all is said and done, this huge mess was created over a piddling sum of about 200 per client. In reality, this is a small amount compared with the overall cost of mortgage borrowing.

But what evoked the ire of customers was the principle. See it from their point of view. They pay hundreds of thousands of pounds over 25 years or more for their mortgages. But before getting hold of the title deeds they are charged exit fees much higher than they expected.

Thanks to some deft handling by the Council of Mortgage Lenders, a good old-fashioned British compromise was brokered between all parties.

When the lenders’ Simon biddle responses were sent to the regulator, the transgressors crumbled, one by one.

So the naughty len-ders are left with the onerous task of compensating those customers who overpaid exit fees. The potential cost of this reimbursement is huge. If I were a shareholder in those businesses I would want to see heads on poles. Their next AGMs should be interesting.

More worryingly, the public relations ripples created by this abuse affect the whole market. The affair has been damaging to the industry’s standing. This could result in a further erosion of consumer confidence, which might have a lasting and highly damaging residual effect. Only time will tell.

But one thing is clear. Many respected lenders have let the side down. They must tighten their internal controls to ensure this sort of thing never happens again.