FSA fines Redstone Mortgages Limited

The Financial Services Authority (FSA) has today fined Redstone Mortgages Limited (Redstone) £630,000 for poor treatment of some customers facing mortgage arrears.

The firm has agreed to redress customers who were charged unfair and/or excessive charges while they were in arrears. It is estimated that the redress will cost the firm up to £500,000.

The FSA has identified a number of serious failings by Redstone which occurred between 1 January 2007 and 5 August 2009 in relation to its mortgage arrears handling processes and in its dealings with customers in arrears.

These include:

Failing to ensure mortgage servicing staff acting on its behalf had adequate understanding of treating mortgage arrears customers fairly;

Focusing on reducing arrears to less than two months, regardless of the customer’s personal and financial circumstances;

Having written policies that led, in some cases, to the unnecessary use of litigation to secure arrangements to pay;

Sending repetitive, excessive and confusing correspondence; and

Applying four charges to customers’ accounts that were unfair and/or excessive.

These were:

• A fee for a returned direct debit which was charged regardless of how many times the direct debit had already been returned unpaid;

• Including arrears fees and charges in the balance on which an early repayment charge was calculated;

• Charging for field counsellor visits in full to some customers who had not been properly informed of the timing of the visit and/or of their right to refuse or cancel the visit; or who should have been charged a reduced rate cancellation fee; and

• A fee for litigation activities, which was applied even when such activities were taken by Redstone unnecessarily.

Under FSA rules, a firm must pay due regard to the interests of its customers and ensure they are treated fairly. Redstone was in breach of these rules for a significant period of time.

Margaret Cole, director of enforcement and financial crime, said: “Many of Redstone’s customers were in a vulnerable position, having fallen into arrears on their mortgage payments, and firms should not charge such customers excessive and unfair fees. This is not how the FSA expects lenders to treat customers in arrears.

“Rather than assessing each customer’s personal and financial circumstances on an individual basis, the firm was applying a one size fits all approach by aiming to reduce arrears to less than two months.

“The FSA is committed to clamping down on mortgage lenders who fail to adhere to treating customers fairly rules. We are crystal clear about the standards we expect and will take tough actions against firms who breach these rules. ”

Redstone qualified for a 30% discount under the FSA’s settlement discount scheme. Without the discount the fine would have been £900,000. The FSA has taken into account that Redstone worked in an open and co-operative way with the FSA and has made significant improvements to its arrears handling and mortgage litigation procedures.