Scrap unfair exit fees or face court, FSA tells lenders
Mortgage lenders that persist in charging unfair exit fees could face court action, the industry watchdog said.
Most banks, led by HBOS, Britain’s biggest mortgage lender, scrapped exit fees for future borrowers this week amid an investigation by the Financial Services Authority. However, in a stand-off that mirrors the banking industry’s stance on overdraft charges, some lenders have refused to lower the charge or fix it for the life of the mortgage term.
Yesterday the FSA called on borrowers to claim refunds from lenders who charged a higher exit fee than had been quoted at the start of the mortgage contract. Some experts have put the banks’ liability over exit fee refunds at £750 million. The FSA also revealed that it would target lenders that reserved the right to increase their exit fees for existing borrowers. It said: “We required these firms to justify their decision. If lenders are unable to justify their position, we will take further regulatory action.”
The FSA said that it expected firms “to ensure that the fee represents the cost of the lender’s administration services and that changes to the fee will be proportionate to changes to the underlying costs. A failure to do so is also likely to be a breach of contract”. Alliance & Leicester, which charges the highest fee at £295, so far has refused to drop its fee. Woolwich has also kept its £275 exit fee. Both banks say that the charge will not be varied during a mortgage term.
Ray Boulger, of the mortgage broker John Charcol, said: “We are waiting to hear final confirmation from several major lenders. This indicates that some are going to tough it out with the FSA.”
A spokesman for the FSA said “regulatory action” could include asking a judge for a ruling under Unfair Terms in Consumer Contracts legislation.
(Published by Times Online, August 2, 2007)