Simon Read: Lender's fine won't help its victims

A former top 10 lender was fined a massive £2.8m by the Financial Services Authority this week and is being forced to hand back £7.7m plus interest that it overcharged customers. The fine was for failing to treat 46,000 of its customers fairly. The lender? GMAC-RFC. If you haven't heard of them, that's hardly surprising as they heavily targeted the sub-prime and self-certified market. But the fine wasn't for encouraging struggling families to take on debts they couldn't afford, as you may have presumed. No, GMAC's crime was far worse.

The lender was fined for its poor treatment of its customers who got into difficulties. That is people who fell into arrears or even faced repossession. I have always been led to believe by lenders that they want to help struggling borrowers.

They tell me that as long as people in trouble communicate with their lender about their problems, they are happy to discuss options to help borrowers avoid defaulting on the mortgage and losing their home. Lenders say they are prepared to arrange payment holidays, or renegotiate a mortgage's length to make repayments more affordable, for instance.

Not so GMAC, it seems. Between 2004 and 2008 it dealt with its army of struggling borrowers by imposing excessive and unfair charges on them, according to the FSA. Not only that, the lender suggested repayment plans that did not always consider a customer's individual circumstances and so could prove to be totally inappropriate. There's more. Crucially, it issued repossession proceedings before fully considering all the alternatives, forcing misery on countless of families who may have been able to avoid losing their home.

I don't know about you, but I find the latter quite shocking. So does consumer group Which? Personal finance campaigner, Dominic Lindley, says: "Instead of treating its customers in arrears fairly, GMAC decided to pile on the misery by squeezing more money out of them and, in some cases, taking their homes. For those people, the FSA's action is too late."

Given that the period the fine covers to November 2008 is almost a year ago, it does suggest that, once again, the City watchdog has been a little slow in dealing with the problem.

I find particularly disgusting the mean-spirited nature of some of GMAC's excessive charging. It says people were overcharged an average £117 for non-payment of their monthly mortgage payment by direct debit when they were in arrears. An average £14 of extra early repayment charges were applied to arrears fees and charges. And, adding insult to injury to people threatened with repossession, the solicitors instruction fee, was on average £45 more than the actual cost.

The lender was clearly profiteering by preying on distressed and hard-up families who wouldn't have dared question the high or unnecessary charges. It's pleasing that the FSA has finally brought the firm to book, but it's dreadful that the move may well be far too late for some folk.