Big banks are acting like big bullies

Kevin Paterson takes a weekly look at the latest developments in the market and brings you what\'s hot and what\'s not in the world of mortgages

The backlash against the exorbitant fees charged by banks when their customers go into the red has been given added weight by the office of Fair Trading, which has stated that it considers excessive fees to be illegal. This move has triggering a dramatic increase in complaints and demands for refunds by customers.

This is something I am sure has not passed the ambulance-chasing claims firms by.

But now it seems that banks, in a fit of pique, have picked up their ball and gone home.

It was widely reported recently that banks that are successfully lobbied for refunds of fees are guilty of adopting intimidating practices including demanding that customers move their accounts.

So concerning is the trend that the Financial Ombudsman Service has launched an investigation into the practice.

Indeed, the FOS has uncovered a range of dirty tricks used by big banks in their attempts to intimidate customers into backing down.

These include closing or threatening to close accounts, imposing high fees for supplying information such as copies of bank statements and fees charged, delays in replying to customers’ letters or worse, ignoring them altogether. More disturbingly, they are enlisting the help of debt collectors to deal with overdrawn accounts.

These bullying tactics are sadly all too common among big institutions that think they can act how they please. And the evidence so far seems to bear the allegations out, as one of the biggest culprits, HSBC, announced record profits of almost £12bn recently.

Unfortunately it is not alone, as this came in the same week that the majority of banks announced record profits – in some cases up 30% year-on-year. Priceless.

Lenders’ employed self-cert offers will come back to haunt borrowers

The voice of reason sounded recently on employed self-cert mortgages and it was long overdue. A leading mortgage broker called for advisers to avoid taking on self-cert cases when clients are employed.

I have long been an advocate of self-cert for the self-employed only, so this was welcome news and I suspect we will hear more comments like this as the Financial Services Authority narrows its sights on self-cert as it surely will. It’s just a matter of time.

Employed people can prove their incomes but self-cert is often used to stretch affordability. I hear of examples whereby elements of unusable income are included such as maintenance payments that are not paid as part of court orders or the classic second job, the income from which is unprovable. All this is dodgy ground and will come back to haunt borrowers.

Lenders that offer these schemes are copping out of doing their job properly as there is no reason they could not

amend their lending policies to accommodate additional income – and I’m afraid all income is provable one way or another.

Self-cert was introduced to recognise the disparity between the net income and the affordability of self-employed people as the tried and tested formula of multiples of gross income for the employed was seen not to work, and accounts bore little resemblance to true affordability. After all, it is in the interests of self-employed people to keep net profits as low as possible.

But the introduction of employed self-cert has muddied the water. And importantly, it’s brokers who will face the wrath of the regulator in this regard, as most lenders still insist on income being declared on their application paperwork, often citing responsible lending as the reason for this when in reality they are simply covering their backs. But if income can’t be proved it’s money laundering – and that’s illegal.