Debt Solicitors

by Pavandeep Bassi

On 8th July 2010, the Financial Ombudsmen gave Redstone Mortgages Limited a final decision notice which notified Redstone Mortgages that they must pay a financial penalty of £630,000 for treating customers in arrears unfairly.

How exactly were they treating their customers?

• According to the Financial Services Authority (FSA), during the period 1st January 2007 to 5th August 2009, Redstone administered on average 9,817 regulated mortgage contracts a month which saw them make an estimated £1.25 billion

• Redstone’s mortgage servicing staff dealt with incoming and outgoing calls to, and correspondence with, customers in arrears. The mortgage servicing staff were allowed in certain circumstances to approve the time period within which customers were required to clear any outstanding arrears, but also had the discretion to refer cases to Redstone management when appropriate.

• Redstone implemented a policy of initiating litigation when the customer was two months in arrears, Instead of adopted suitable arrangement to pay the arrears, the mortgage staff focused on reducing arrears as quickly as possible.

• Also, Redstone’s arrears handling policy only allowed customers to pay less than the monthly payment at the customer’s request and were not proactively offered by the mortgage servicing staff.

• Furthermore, According to the FSA’s Final Decision Notice, Redstone was commencing mortgage litigation without giving adequate consideration of all the options available for those customers and/or taking their personal and financial circumstances in account.

• Some of Redstone’s customers incurred excessive or unfair costs and accruing arrears that could have been avoided had Redstone adopted a more flexible and fair approach to arrears management

• Finally, the FSA also indicated that Redstone was treating there client unfairly by sending oppressive and sometimes confusing correspondence.

Having read the notice it had come a light that Redstone Mortgage Ltd had failed to comply with the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”).

What is the Sourcebook – Surely they mean Facebook?

The Mortgages and Home Finance: Conduct of Business sourcebook can be found at the FSA’s website under there publications. The Sourcebook applies to every firm that carries on a home finance activity or communicates or approves a financial promotion of a mortgage.

Focusing more on the specific rules which were breached. Under the rule 12 of the sourcebook, A firm must ensure that any regulated mortgage contract that it enters should not impose a early repayment charge other than one that is able to be expressed as a cash value; and there should be a reasonable pre-estimate of the costs as a result of the customer repaying the amount borrowed before the mortgage contract comes to an end.

A firm must also make ensure that any charge in relation to making a further advance, arranging or advising on a regulated mortgage contract or arranging or advising on a variation to the terms of a regulated mortgage are not excessive.
The Sourcebook also indicates that when determining whether a charge is excessive, a firm should consider whether the charges are an abuse of the trust that the customer has placed in the firm; and whether they have duly notified there client about the charges.

Having read the final decision of the FSA it clearly expresses why there was a need of imposing sanctions . However, it was also very apparent that the £630,000 financial penalty was nothing more than a slap on the wrist, a light one if that when considering 6000+ mortgages which were administered by Redstone over the two year period.

Similar cases

Redstone Mortgage Limited is not the first to recently come under fire for treating customers unfairly. In April 2010, the FSA announced that they had fined over £1 million due to the poor treatment of there customers. Kensington Mortgages were apparently hammering borrowers behind on payments with huge charges and for focusing more on the profitability of the business, rather than on treating customers fairly.

Quite similarly, according to Moneysupermarket.com, GE Money was fined £1.1m in September 2008 and forced to compensate 5,500 customers after systems failings resulted in over-charges of £2.3m.

Nevertheless, I believe GMAC-RFC takes the prize having been fined £2.8m for mistreating mortgage customers who fell into arrears and ordered to pay them up to £7.7m in compensation. According to the Guardian, this is the biggest ever fine imposed by the FSA.

The FSA insist that the GMAC case "sets a precedent", indicating that others who have been treated with such disdain may also be entitled to similar redress in future.
The FSA in October 2009 included a ban on arrears charges when a borrower is already repaying, and ensuring firms do not profit from people in arrears among its reforms of the mortgage market.

Final thoughts

I question whether all this will make a difference especially in light of the FSA published figures which showed that complaints about arrears handling increased by 41% to 39,181 in the first six months of t 2009, compared with the second half of 2008. Complaints about misleading advice rose by 19% to 207,967.

The FSA also published figures that complaints have increased by 19% to 334,443 in the first six months of 2009 giving a total increase of 72% since the first half of 2006. These figures can be found on the FSA website in their FSA Library which contains a record of all their documents published on the web.

The FSA have accounted that measures are being put in place so that potential complainants are not disadvantaged by a delay in the regulator's own plans to revamp the way firms are obliged to deal with new complaints. This need for revamping regulatory policy obviously shows that the Financial Ombudsmen Service is being battered by the floodgates caused by foolhardy financial institutions.

The Financial Ombudsmen Service does hope to have a new set of industry rules in place by the end of summer, they hope to deal with there backlog of complaints which they have racked up since last November. I hope customers still have the good fight left in them and are willing not to back down for there fight for compensation.