The debt problems of many homeowners struggling to keep up with their mortgage payments haven’t been helped by excessive fees charged for going into arrears, according to the Financial Services Authority (FSA).
Four high-profile lenders are being scrutinised by the FSA for charging excessive fees to borrowers who are in arrears and who may be suffering debt problems as a result.
With fees of around £30 for a second arrears letter and charges of almost £100 for some debt advice from an arrears adviser, the Council of Mortgage Lenders (CML) has warned its members to review fees regarding customers in arrears. The CML told its members that their charges should not exceed the cost of dealing with customers.
The excessive charges have outraged consumer groups and debt advice organisations.
Dominic Lindley of consumer magazine Which? said: “The FSA should realise that a quiet-word-in-your-ear kind of regulation isn’t working and lenders will only treat customers fairly when they see very high fines.”
“There’s no evidence that these [charges] are a reasonable reflection of the cost and they can be charged regardless of whether you have entered into an agreement to pay off those arrears.”
Ivan Cooper, Chairman at the UK’s leading debt management firm Chiltern, said: “For these customers, facing an excessive fine for falling behind with their mortgage only adds to their debt problems – as they will then be treading water trying to clear these fees.
“More should be done to understand ‘why’ customers have fallen behind with payments and support them with debt advice, rather than issuing further fees and subsequent debt management issues.”
Lord Myners, Treasury Minister, told the Treasury Select Committee that “there is a risk that charges could be excessive and the FSA should give that very serious attention”.
Mr Lindley of Which? asked MPs on the Committee to: “recommend rules so that if a consumer has entered into an agreement to pay off arrears then all charges are suspended.”
Which? also recommends “A 90 day charge-free window”. This would enable consumers to take control of their debt management and provides the opportunity to seek some impartial debt advice.
Reputable debt advice organisations, such as The Debt People, Hamilton Locke and Chiltern, can negotiate on behalf of a clients to try and reduce unsecured debts to a more affordable level. This eases the pressure on finances so that the payments towards secured debts – like a mortgage – can be maintained.
Some professional debt solutions offered by debt management organisations, enable finances to be simplified by gathering multiple outstanding balances into a single monthly payment. With a debt management plan, debt payments are then re-structured over a longer period of time – thus making them more affordable.
On other debt solutions, like an Individual Voluntary Arrangement (IVA) or a Trust Deed, payments are repaid over a fixed period of time (usually five years for an IVA and three years for a Trust Deed).
With all of these debt management solutions monthly payments are based on affordability, so should be easier to maintain.
For immediate debt advice, or for further information on debt management plans, IVAs and Trust deeds, please call the number at the top of this page.
