View more on these topics

FSA is too woolly when it comes to exit fees

After lenders’ exit fees getting a bashing in the media over the past couple of years, the Financial Services Authority has finally decided to give its input. But is it too little, too late?

This month the regulator issued a briefing note on exit fees following its announcement last September that it was looking into the charges after some people had argued the rises were unfair.

And there’s certainly been a massive hike in the fees over the years – well ahead of inflation. For example, despite the furore, the Royal Bank of Scotland group recently said that for several of its mortgage providers including First Active and Tesco Mortgages, exit fees would rise from 195 to 225.

What makes this all the more annoying for borrowers is that the cost of administering mortgages has fallen for lenders, due to advances in technology.

It’s not just the level of the fees that’s unfair but also the lack of transparency. As it stands, most lenders can increase their fees on a whim during the course of a mortgage.

What the FSA has come out with so far seems rather woolly but at least it has singled out the way lenders use their discretion to change fees as a question of concern.

Although the FSA makes it clear it does not set prices for financial products and firms can vary what they charge for services, their contracts must comply with the Unfair Terms in Consumer Contracts Regulations 1999 and with general law.

And the regulator refers to its May 2005 statement of good practice on fairness of terms in consumer contracts which states that clauses should only be changed if valid reasons are specified.

The FSA has gone so far as to say that some mortgage contracts are not clear when it comes to explaining which costs could be charged to customers and has asked lenders to give evidence of how they reach decisions to prove they are fair.

I doubt many lenders will put their hands up and admit to being unfair, so surely it would be better to ask intermediaries and their clients if the fees being charged are justifiable.

It seems unlikely that many lenders will be able to explain how massive hikes in exit fees are justified when compared with the exit costs they incur.

Surely the last thing someone needs if they default on their mortgage is yet another bill to pay. And exit fees can also be used as a sneaky way to recoup money lost from enticing new business with tempting upfront deals.

A final thought – where do exit fees fit in with the FSA’s Treating Customers Fairly initiative?

We’re unlikely to be any more clear on the exit fees issue before the autumn. By then lenders will have responded in a bid to pacify the regulator’s concerns.


Alexander Hall’s football triumph

Alexander Hall romped to victory in The Mortgage Works’ football tournament last week. The London-based brokerage thrashed packager Square Mile Mortgage Finance 5-1 in a replay of the final of TMW’s last football tournament which was held two years ago to coincide with Euro 2004. Ten teams took part this year including Savills Private Finance, […]

Bankhall invests in new telephony to improve member support.

Bankhall has unveiled a new telephone system and member contact team to further improve the service it offers to members.A single contact number, 0845 003 0400, will now feed all incoming calls into a simple five option menu, allowing members to select with speed and accuracy the correct route for their call. A group of […]

Commissions tracking tool

Quay Software has introduced an automatic commissions module that allows IFAs to automate and track their commission.

Money Partners launches revamped mortgage range

Money Partners has announced a number of enhancements to its range of Origin-branded mortgages.The changes take effect from Monday June 19 2006, and comprise the following:Discount products Three-year discount mortgage a new product offering a discount element of 1% throughout the full discount period. Rates start at 5.09%, and there is no extended early redemption […]

Guarantees in the retirement income market

Lorna Blyth, Royal London  Do guarantees benefit customers and, if so, when? To answer this conundrum we commissioned Millimans, a global actuarial consulting firm, to conduct an independent review of the UK retirement income market and whether guarantees really do offer customers better value for money. The brief The study was one of the most comprehensive undertaken […]


News and expert analysis straight to your inbox

Sign up