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Lenders face big payouts on exit fees

Lenders could find themselves doling out thousands of pounds in compensation to past customers following the introduction of measures regarding exit fees by the Financial Services Authority.

Last week, the regulator outlined measures concerning mortgage exit administration fees that mean lenders will have until February 28 to decide whether to charge no exit fees, their original fees or revised fees.

However, the FSA has warned that lenders that increase their exit fees beyond the figure originally quoted to customers may face investigation.

The measures also state that in accordance with the 1995 Consumer Credit Act’s unfair terms of contract, lenders must treat past customers who complain about the level of exit fees they were charged in the same way as they treat comparable current customers.

This means that borrowers who have been charged exit fees that are more than their original quotes since 1995 can complain to their lenders and potentially receive refunds.

A spokesman for the FSA admits that there could be quite a lot of consumers with the potential to complain.

The measures do not give the regulator the power to force lenders to pay compensation to past customers but unsatisfied customers can also refer their complaints to the Financial Ombudsman Service.

Lindsay Sinclair, chief executive of ING Direct, says: “Exit fees average £191 despite it costing lenders just £35 to close a loan. It’s heartening to see the FSA is taking action.”

Alliance & Leicester has come under attack both from within the industry and from consumer groups for its decision to charge borrowers £295 exit fees.

A spokeswoman for A&L says: ‘We don’t hold the addresses of previous mortgage customers on our system so if anyone comes into this category we suggest they contact us.”

The refund each customer receives is likely to be £100.

Northern Rock recently revealed that it has a £15m compensation fund in regard to exit fees for its past and current customers. An NR spokesman says it expects a lot of past customers to contact it and estimates the average refund will be £60 per customer.

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