Watchdog says firm is guilty of overcharging some customers who were in arrears and applying arrears charges inconsistently and unfairly
A lender that charged 12.75% interest on mortgages targeted at homebuyers with blots on their credit records has been ordered to repay £2m to customers.
The Financial Services Authority (FSA) found that Cheshire Mortgage Corporation Limited, based in Manchester, had overcharged some customers who were in arrears and applied arrears charges inconsistently and unfairly between October 2004 and the end of 2009. It also fined it £1.22m.
CMCL chief executive, Henry Moser, will step down within six months and was ordered to pay a fine of £70,000.
The lender organises mortgages for people who have had county court judgements against them and who had previously had arrears. It specialises in loans of up to 100% for shared-ownership properties.
Financial firms have “know your customer” rules that are supposed to prevent people borrowing more than they can afford, for example by checking their income. But the FSA found that CMCL was unable to always demonstrate the mortgages it sold were affordable, and failed to treat some of its customers fairly when they fell into arrears. Sometimes customers were only told about charges after they had been incurred.
CMCL would transfer customers who had fallen behind with payments to what appeared to be a separate company, Monarch Recoveries, and charged them £150 when doing so. But the FSA found that Monarch was simply an in-house company of CMCL.
About 2,000 customers will now be compensated in an exercise that will cost the firm around £2m.
Tracey McDermott, FSA director of enforcement and financial crime, said: “CMCL’s lacklustre approach to regulation, combined with very poor practices in collecting arrears, meant some customers already worried about being able to pay back their mortgages were put under undue pressure and sometimes ended up paying more than they should.
“The failings were serious and let down a vulnerable group of consumers. Where firms and individuals fail to comply with our rules and treat customers fairly they should expect to be held to account.”
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