Mortgage firm GMAC fined £2.8m over unfair charges

Mortgage provider GMAC was today fined £2.8m and told to repay more than £8m following the unfair treatment of customers in arrears.

GMAC, which stopped offering new home loans in May last year, was found by the Financial Services Authority (FSA) to have slapped "excessive and unfair charges" on customers in arrears or whose homes were repossessed.

According to the FSA, more than 46,000 mortgage account holders were charged a £15 monthly direct debit fee for non-payment while they were in arrears. GMAC has estimated the average repayment it will need to make to these accounts is £117.

Between 21,000 and 27,811 account holders who redeemed their mortgages found that an early repayment fee was applied to arrears charges as well as the loan value. This is estimated to result in an average refund of £14.

The final example of unfair charges was solicitor instruction fees, which for more than 41,000 accounts were found to be £39 higher than the actual cost. GMAC has said its average repayment will be £45.

It is unknown whether some customers were hit with all three charges.

The FSA ordered the company, which is part of the international financial services group GMAC Financial Services, to pay compensation to mortgage customers totalling £7.7m, plus a flat interest rate of 8 per cent.

It said the firm had qualified for a 30 per cent discount for an early settlement of the fine, which would otherwise have been £4m.

The FSA said its investigation discovered a number of "serious failings" in GMAC's dealings with its customers.

These were:

* Excessive and unfair charges for customers that did not reflect administration costs.

* Proposing repayment plans that did not always consider a customer's individual circumstances.

* Inadequate training of mortgage servicing staff in handling of arrears and repossessions.

* Issuing repossession proceedings before fully considering all the alternatives.

In a statement today GMAC said: "We want to apologise to customers affected.

"We have worked openly with the FSA to review and revise our procedures for managing accounts in arrears.

"While our arrears charges were in line with the market, in hindsight, we fully accept that for certain fees our estimates of the costs were not proportionate to the additional administration actually required."

The firm said it would contact people affected and repay them either through automatically crediting their accounts in the case of existing customers, or sending a cheque to those that have redeemed their mortgages. Customers who had their homes repossessed and still owe the firm money will have the amount owed deducted from the balance.

Margaret Cole, director of enforcement at the FSA, said: "This case shows credible deterrence in action.

"It is an excellent example of what the FSA's more intrusive approach can achieve for consumers and it reflects what we said in our Mortgage Market Review last week about unfair mortgage arrears charges.

"Mortgage lenders and third party administrators should read this final notice and the Mortgage Market Review and take action in the interests of their customers."

The FSA has already said that it is investigating several other firms over unfair charges while customers are in arrears, although no details are currently available on these.