Watchdog hits subprime lender with £1.12m fine

Nick Goodway
25 Sep 2008

The City watchdog, the Financial Services Authority, today slapped a £1.12 million fine on one of the country's largest providers of subprime mortgages in a clear message to the industry that it expects it to sharpen up its act.

GE Money Home Lending, which also sold mortgages under the igroup and First National brands, has also paid a total of more than £7 million in compensation to just over 5000 of its customers.

Margaret Cole, head of enforcement at the FSA, said: "The firm's failings were serious because a large number of borrowers, including some with impaired or non-standard credit profiles, were put at risk of financial loss.

"The firm identified the systems and control failings in 2004, but despite internal recommendations that improvements be made, no corrective action was taken for more than two years.

"I emphasise that we expect high standards by lenders in their administration of their mortgage book," she added.

GE Money regularly told mortgage customers that it would retain part of their advance until the borrower had completed necessary repair work on their home. The sums retained ranged from £100 to £40,000 and averaged £3513. The retention was usually meant to last six months.

The FSA found that GE Money charged clients interest on the money it had retained.

It also regularly failed to send the money to the borrower or deduct it from the loan total after the six months was up.

In some cases, even when the total mortgage was paid up or redeemed, GE failed to remove the retained money and the interest charged on it from the total final bill. That meant some customers overpaid the lender when they paid off their mortgages.

The regulator said that GE had spotted the problem in 2004 but failed to do anything about it or pay compensation to its customers for another two years.

Today's fine is the largest ever imposed on a mortgage lender and follows the FSA's warning to the mortgage industry last month that it had found serious evidence that some lenders were not dealing responsibly in the subprime market.

Lesley Titcomb, FSA director in charge of mortgages, said: "In current market conditions more people are struggling to meet their mortgage payments and it is vital that firms treat them fairly."