Mortgage firm fined
Updated on 25 September 2008
A mortgage lender has been fined £1.12 million by the City watchdog for failings which led to borrowers losing £2.3 million.
The Financial Services Authority said the fine on GE Money Home Lending was the first it had ever imposed on a mortgage lender in relation to its lending processes.
A total of 684 borrowers were affected by the problems at the group, losing an average of more than £3,000 each, although they have since been paid compensation.
The failings related to customers who had mortgages with a so-called retention clause.
Under these loans a sum of around £3,000 was withheld from the mortgage advance, typically where the borrower was required to carry out specified repairs on their property.
The terms and conditions stated that the money would be withheld for six months, but during this time the borrower was charged interest on the full loan amount.
After six months the money that had been retained and the interest that had been paid on it should have been released to the borrower or used to reduce their outstanding mortgage balance.
But the FSA said due to inadequate systems and procedures at the firm, this did not always happen, and the firm continued to charge interest on the retention money to some borrowers.
Margaret Cole, FSA direct of enforcement, 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.
Colin Shave, chief executive officer of GE Money Home Lending, said: "We regret the events which led to this situation and, although the number of affected borrowers was small compared to our overall customer base, we sincerely apologise to those who were affected.
"Our customers can be assured that we have taken this matter extremely seriously and have thoroughly reviewed our systems and processes to ensure this could not happen again."
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