The Financial Services Authority (FSA) has fined a mortgage lender 1.12 million pounds after offering loans with attached clauses that sometimes left customers paying more interest on their mortgages.

It is the first time such an action has been taken and furthers the groups aim of sending a clear message that loans providers need to have strong monitoring systems in place to make sure the interests of their customers are looked after and that all borrowers are treated fairly. Announcing the fine, the FSA said that while the loan firm had identified failings back in 2004, it failed to rectify the issue and continued to overcharge some customers in interest payments.

The financial regulator explained that the borrowers most affected were those who had taken out a mortgage loan with a retention clause, wherein a portion of their mortgage was kept by the company pending the completion of some area of responsibility, commonly household repairs. After such work had been completed, these monies were supposed to be returned to the borrowers with interest. However, the company often failed to return the money to the lender, often charging them additional interest on the amount.

Commenting on the ruling, FSA director of enforcement Margaret Cole said: “The firms failings were serious because a large number of borrowers, including some with impaired or non-standard credit profiles, were put at risk of financial loss. The firm identified the systems and control failings in 2004, but despite internal recommendations that improvements be made, no corrective action was taken for more than two years. I emphasise that we expect high standards by lenders in their administration of their mortgage book.”

In issuing the fine, the FSA did take into account the fact that the firm had previously reported the failing and conducted a redress scheme to give money back to customers who were put at risk. In total, more than seven million pounds has been returned to 5,245 borrowers who took out loans since October 31st 2004.

The unnamed firm agreed to a settlement during the early stages of the FSAs review and as such was entitled to a 30 per cent reduction in the total fine which it was liable for. Had it not done so, the regulator would have pushed for a fine of 1.6 million pounds.

For those consumers who have struggled to obtain a loan because of an unfavourable borrowing record, taking out a bad credit loan may prove an effective way to get back on their feet and begin to make regular payments covering various areas of expenditure such as mortgages, credit cards, bills and other outstanding personal loans.

Taking out a bad credit loan may be of interest to a growing number of people after KPMG warned in August that the lack of cheap mortgage loans is causing many people to encounter difficulties in keeping up with repayments. It noted a rise in the number of people approaching their creditors to try and resolve their financial problems in an informal manner to avoid filing for insolvency.

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