Kensington Mortgages must pay over £1 million in compensation after it was fined by the Financial Services Authority (FSA) for hammering borrowers behind on payments with huge charges.
It has been slapped with a £1.225 million penalty for "unfair" practices which included excessive fees for direct debit payments that failed because the borrower did not have sufficient funds in their current account (see the Mortgage Arrears and Redundancy guides).
It must also pay back just over a million pounds in redress as a result.
The FSA has urged consumers in arrears on their mortgage who have been treated unfairly to complain and try to get their fees back, regardless of lender (see the Reclaim mortgage arrears fees MSE News story).
One Kensington borrower who contacted MoneySavingExpert.com got £745 refunded in February after making a complaint long before the FSA's action became public.
Kensington, a major player in the sub-prime market before the credit crunch, is the latest mortgage firm hit with a fine over high arrears charges, with other investigations still ongoing.
GMAC-RFC, the tenth largest mortgage provider pre-credit crunch, was ordered last October to pay compensation to up to 114,000 borrowers hit with unfair arrears fees (see the GMAC mass refunds MSE News story).
The FSA identified a number of "serious failings" by Kensington which occurred between January 2007 and October 2008.
In particular, it says the lender applied three "unfair" or "excessive" fees which must be refunded. Kensington says it will contact those affected by 31 May, adding that "no action is necessary".
- A fee for a returned direct debit levied every time the lender attempted to take payment (in theory, it could have tried any number of times). Kensington says the average refund is £25 per charge.
- An excessive fee for cancelled direct debits which did not reflect administrative costs. Average refund: £8.75 per charge.
- Including arrears fees when determining the balance to calculate an early repayment charge (ERC). If you pay a mortgage off before an introductory deal ends, you usually pay a fee which is a percentage of the total balance, so the higher the balance, the higher the fee. Average refund: £37 per charge.
The FSA says Kensington staff did not treat borrowers fairly, prioritised profit over sympathetic handling of cases and concentrated on clearing arrears quickly rather than agreeing a repayment plan.
A Kensington spokesman says: "We apologise and we are working to redress those affected as quickly as possible. Our charges were in line with the market at the time.
"However, we acknowledge there were certain fees where it was felt that the charge did not accurately reflect the additional work and cost incurred by Kensington. We no longer charge these fees and will be writing to customers who have been affected."
What about other Kensington charges?
While the action against Kensington largely related to direct debit fees and early repayment charges, one MoneySaver got a huge £745 refund from Kensington in February after complaining about a variety of charges, not just those highlighted by the FSA.
Steve Long, from Cumbria, got the cash back after being hit by charges in 2007, 2008 and 2009. Those fees were mainly penalties simply for paying late.
He wrote to the lender in early February and it refunded the cash within a week.
So if you're a Kensington customer hit with any excessive arrears charge, consider making a complaint.
The FSA launched a crackdown on high mortgage arrears fees in January and is encouraging anyone who feels badly treated to complain. It says poor lender practices centre on the size of fees and how they're charged:
- Excessive fees. One of the clearest examples, the FSA says, is where the charge is higher than the administrative cost to the lender. If it costs £10 to send a letter but the charge is £35, that's £25 too much.
Lenders often charge around £35 per missed payment, £100 for a debt collector visit and thousands in legal and estate agent fees if your property is repossessed (see the Huge mortgage fees MSE News story).
- Unfair charging. The FSA has found numerous examples of firms sneakily finding ways to incorporate charges when they shouldn't. For example, when struggling borrowers are already on a repayment plan.
Also, lenders charging non-direct debit payment fees (to pay for payment processing) when no payment was made, or including arrears charges in the total mortgage balance when calculating an ERC.
How far back can you reclaim?
The Financial Ombudsman Service, the independent arbitrator between firms and their customers, says you can reclaim fees from as far back as you like, as long as you make the complaint within three years of realising you could.
As the FSA has only got tough over the past few months, most people will still be within that three-year time-frame.
If unsure of past charges, make a request to get a list of fees charged from your lender over the past six years under the Data Protection Act. This will cost up to £10.
How do you reclaim?
First complain to your lender setting out why the charges are unfair and ask for your money back. If you are turned away or do not get a satisfactory response within eight weeks, complain to the free Ombudsman service (see the Ombudsman guide).
Martin Lewis, MoneySavingExpert.com creator, says: "As there's no cost, and most people in arrears are in financial hardship, and therefore should be treated with sympathy, I would urge anyone who feels unfairly treated to complain."
Further reading/Key links
Get help: Mortgage Arrears, Redundancy help
Mortgage cost-cutting guides: The Remortgage Guide, Mortgage Haggling, Cheap Mortgage Finding, Ditch My Fix?