A sub-prime lender has been fined £840,000 and told to pay £1.5 million in compensation for irresponsible lending practices and failing to treat customers who fell behind with their mortgages fairly.
The Financial Services Authority, which found a catalogue of failings at DB Mortgages, part of Deutsche Bank Group, said it was the first time it had taken enforcement action against a firm for irresponsible mortgage lending.
The problems uncovered included failing to show that customers could afford mortgages when the term was due to continue after they had retired and not considering whether cheaper loans were available to people taking out self-certification mortgages.
It also failed to ensure customers had thought about where they would live at the end of their mortgage term if they needed to sell their home in order to repay an interest-only loan.
The regulator said there were also problems over the way the lender treated customers who had got into mortgage arrears.
It failed to consider people's individual circumstances or tell them about the range of options that were available to them.
It also applied charges which were considered unfair because they were levied repeatedly or did not reflect the cost of the service.
These fees included a £50 monthly arrears management charge, as well as a £250 fee for instructing a solicitor, which was £83 more than it cost the group.
Margaret Cole, the FSA's managing director of enforcement and financial crime, said: "This is the first time that we have taken enforcement action against a firm for irresponsible mortgage lending.
"Firms need to understand that we will not tolerate lax lending practices and unfair treatment of customers in arrears.
"Firms which fail in their obligations to customers should expect not only a substantial fine but also that they will have to pay back customers who have been disadvantaged by their failings."
The FSA said DB Mortgages had cooperated with it and made significant improvements to the way it handled people who were in arrears.
It also settled with the FSA at an early stage, meaning that it qualified for a 30% discount, without which it would have been fined £1.2 million.
The regulator has previously fined GMAC-RFC, Kensington Mortgages and Redstone Mortgages for failings in the way they have treated customers who have fallen behind with their mortgage.
DB Mortgages was wound down in mid-2008 and no longer writes new business.
The group said in a statement: "As a result of the settlement, DB Mortgages agreed to pay a fine of £840,000 and established a customer redress programme that will include contacting affected customers and refunding certain customer fees.
"Following the identification of the issues raised by the FSA in an industry-wide review started in 2008, DB Mortgages immediately commissioned a third-party review into its lending and arrears collection processes.
"As a consequence, DB Mortgages has improved its oversight of mortgage servicing activities."Reuse content