Complaints about mortgage lenders rise 40% in six months

FSA blames increase on sub-prime specialists and warns of enforcement action

Complaints about the way banks, building societies and specialist lenders treat struggling mortgage customers have soared by 40 per cent over the past six months, figures from the chief financial watchdog showed yesterday.

Amid mounting concern at the way financial services companies deal with people battling to make loan repayments during the recession, the Financial Services Authority warned the industry that enforcement action and heavy fines would result if it failed to clean up its act.

The regulator has particular concerns about the specialist "doorstep" lenders, who were not around during the last recession and have proved far more aggressive in trying to recoup mortgage arrears than traditional banks and building societies.

The FSA said the business models of some of these companies showed that they appeared to have been set up primarily "to profit from arrears". The 39,181 complaints to the FSA about the handling of arrears is an all-time record – and almost three times more than in the first half of 2006, the first period for which such data is available.

Lesley Titcomb, director of the FSA's small firms and contact division, said: "We have a number of pieces of work in train looking at how lenders are handling arrears. Arrears are at a high level, so it is almost inevitable that complaints are at a high level, but we have identified a number of particular issues in specialist lenders, as distinct from banks. We will be looking closely at their business models."

Ms Titcomb said some lenders' failings included imposing heavy charges on clients who began to fall behind on mortgage repayments, and not considering people's circumstances. Traditional banks and building societies, which have faced similar problems in previous downturns, have made efforts to act more sensitively over arrears. That has not always been the case with specialists, whose clients include the self-employed and those with poor credit histories.

The number of complaints about financial companies rose by 2 per cent to 1.5 million in the second half of 2008, the FSA said. Concerns about the insurance industry also soared, by 72 per cent since the first half of 2006. The number of grievances about misleading advice rose by 19 per cent. Earlier this week, for example, the FSA found "serious failings" in the high-street broker Swinton's sales of payment protection insurance. It fined the company £770,000 and ordered it to offer refunds to 350,000 customers.

The proportion of financial complaints that took more than eight weeks to deal with rose 10 per cent to 11 per cent, the FSA added. However, the proportion of complaints which were upheld – mostly against banks – fell from 40 per cent to 38 per cent. If complaints are rejected, consumers can approach the FSA ombudsman.