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Increased exit fees to face FSA scrutiny

Lenders who increase their mortgage exit administration fees beyond that originally quoted to the customer may face investigation, warns the Financial Services Authority.

The regulator is responding to recent concerns that MEAFs had been increased unfairly, so consumers were being charged higher exit fees than they had expected to pay.

Lenders often charge MEAFs when borrowers pay off their mortgage or switch to another lender to cover the staff and other costs involved.

Clive Briault, managing director of retail markets at the FSA, says: “We expect that these measures, agreed with the Council of Mortgage Lenders, will stop borrowers from being surprised by unexpected increases in these fees.

People will now know when they sign up for a mortgage what fee they will pay on exit, or should be given a clear idea of how the fee might be increased fairly.”

The FSAs views are set out in a statement of good practice issued under its powers as a qualifying body under the unfair terms in consumer contracts regulations.

Lenders will have to decide by February 28 whether they will charge current customers no MEAF, the original MEAF, a revised MEAF, or their current increased MEAF.

The FSA is unlikely to investigate further a lender which adopts one of the first two options, or the third option if the revised MEAF is lower than the original MEAF.

However, the FSA will require lenders that adopt any other option to justify their position.

The original MEAF will usually be the fee that was disclosed to the customer when they entered the original contract, took out a further advance, or changed their mortgage product.

The FSA expects lenders to treat past customers who complain about the level of the MEAF they were charged when they exited their mortgage contract in the same way as the firm will be treating comparable current customers.

If a firm will only charge its current customers the original MEAF, then a past customer who has paid a higher MEAF to exit can expect a refund of the difference between the actual MEAF paid on exit and the original MEAF if he or she complains.

The Council of Mortgage Lenders has worked with the FSA in drawing up the statement and endorses the menu of options to its members who represent virtually the whole of UK residential mortgage lending.

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