Written evidence submitted by Dr William
Michael Ramsden, Dr Ronald Raymond Heywood and Rita Gutteridge
1. An area previously not addresseed which
is highly relevant during a period of economic downturn is the
number of commercial borrowers, who despite evidence given to
the Committee to the contrary are not being provided with assistance
2. The results from banks are giving a false
impression in that a significant proportion of the financing of
monies arises from merely refinancing existing borrowing.
3. It is not possible to reconcile the reasoning
behind decisions, which appear to be clearly punitive and questionable.
4. In revisiting our former evidence, the
need for greater transparency remains along with greater accountability
for breaches contained in an oppressive policy agenda. The protocols
have gone some way to assist debtors facing mortgage repossession,
however as the evidence shows over 65% failed to comply with such
protocols, the industry Watch Dog, the FSA should be more proactive
in ensuring that any code or protocols should be complied with
from the start and not left to chance, thus creating greater hardship.
5. Penalty charges clearly should be abolished
and home visits serve very little, save to rack up further charges.
6. The FSA should be extremely pro-active
and support the abolition of such charges. If additional work
is involved, in dealing with a defaulting borrower, then this
should be reflected both in the work involved and be scrutinised
if necessary by the FSA.
7. The FSA should ensure greater accountability
of these charges. It follows that such a lender would be hard
pushed to justify the escalation of those costs flowing from a
8. The FSA in being pro-active should be
seen as an enforcer not a mediator, which will give greater credibility
to its role. Sanctions should be imposed upon the industry found
to be falling short of any code and or rules.
9. In essence, the greater accountability
to the FSA, then the stronger the consumer confidence in the industry
itself. The more pro-active the FSA with like sanctions, then
more confidence will or should lead to fewer complaints.
1. We welcome this opportunity to submit further
evidence to the House of Commons Treasury Select Committee concerning
mortgages and secure loan arrears.
2. The background to the first two witnesses
are that they have both worked and practised in area of housing
law advice, assistance, advocacy, representation and training
for many years based in the North West of England. They have between
them previously worked with the Citizens Advice Bureau Service,
Shelter, the Law Centre movement and private practice. Further
they have appeared and or participated in both radio and TV presentations
surrounding housing, consumer and debt matters; instrumental in
co-drafting a code of practice appertaining to the conduct of
3. Such work has extended to frequent representation
under the Housing Duty Possession schemes within local county
courts. Dr Ramsden is a Barrister
and both lawyers
have taken a number of cases to the Court of Appeal affecting
the Consumer Credit Act,
thus assisting many consumers in so far as it related to Mortgage
4. Rita Gutteridge is a senior researcher
to Dr. Ramsden and her excellent research along with her tenacity
has been assiduous to a fault, which has proved to be the corner
stone to many issues challenged within the banking industry.
5. Since the former evidence the economic climate
has shown little change and therefore it is necessary to touch
upon a number of concerns and the way that some mortgage providers
are assisting their borrowers and others less so, whilst racking
up costs against their customer.
6. Of concern during this economic downturn was
the number of commercial borrowers,
with personal mortgages who arguably were not being provided with
the assistance they required. In a sample case study
recited below one could not reconcile the reasoning behind one
decision, which was clearly punitive and questionable.
7. Whilst there has always been the need for
greater safeguards within possession proceedings, it was hoped
that the recent Protocols to be found within the body of the Civil
Procedure Rules ("CPR") would lend itself to implementing
the checks and balances within the Court Procedure.
8. It was sad to note that that many High Street,
first charge lenders
breached the protocol,
whilst others less so, however equating to 67%, second charge
specialist falling short of the above.
9. In essence borrowers are still faced with
problems in terms of repossession and the Mortgage Providers should
ensure greater compliance with the Protocols,
in order to steer clear of unnecessary costs likely to be incurred
for such breaches.
10. This is essential to avoid deliberations
surrounding wasted costs Orders or the like.
Moreover if the protocols are ignored then this will indisputably
place greater stress upon the Debtor/s at a time when all the
help and assistance should be offered in line within the spirit
of the Protocol.
11. A number of reported issues
cause extreme concerns when two mortgage lenders are involved,
as what may accord to one may not necessary with the other.
12. In our former deliberations
reference was made regarding penalty charges, which are often
disproportionate and serve to rack up costs thus leaving the debtor
in further financial turmoil. A good example is to be found in
the case study of "R".
13. In the above case "R" entered into
a first mortgage with "A" being a fixed rate mortgage,
for a period of two years.
In early 2009 "R" became ill and claimed from his mortgage
protection policy to meet the mortgage repayments.
14. There was a delay in processing the claim
and arrears arose with "A" in the sum of £1,700.
"R" was unable to expedite the process and therefore
arrears accrued during that period, which often is to be found
within the terms of such policy.
15. "A" imposed a penalty charge
of £115 per month on "R" without taking account
(a) "R's" personal circumstances; (b) that the insurance
policy had provided to meet all payments for a period of 52 weeks,
following the qualifying period of three months.
16. As the insurance provided payment following
the first quarter there was bound to be subsequent arrears, until
such times as the shortfall was met and or capitalised. In essence
there would be an additional £1,380.00 per annum added to
the mortgage balance and the repayment structure would increase
to accommodate both the arrears and penalty charges.
17. Following the anniversary of the mortgage
such costs would then be added and the repayment structure adjusted
to take into account the enhanced debt.
18. It follows that there would be additional
interest also on the penalty charges, thus adding further burden
upon the pressed debtor. The penalty charge is punitive and serves
to rack costs to the debtor and of course such charges can extend
to home visits.
19. The above charges are very often added onto
the mortgage thus increasing further, the burden of meeting the
monthly charges along with interest thereto. In our view such
charges should be abolished and if costs are incurred as a result
of such a default they should not extend over the total default
period as this flies in face of adversity and offends the basic
equitable principle of fairness, to be found within the Industry
Code assuming the nature of the lender.
20. The FSA should take a lead in fully investigating
such charges and impose punitive sanctions upon such breaches,
which fall short of the above principle.
21. The title would suggest that the desperate
measures are attributable to the debtor, which of course may be
the case, however during the course of advising those falling
upon hard times, we became extremely concerned regarding the oppressive
action taken by a particular lender who provided both commercial
funding as well as a private mortgage facility, through its mortgage
22. "M" had traded with "RB",
for over a decade and during this time had met all payments discharged
liabilities and funded other investments, to the satisfaction
of "RB". "M" also had a personal mortgage
on his home and this had been kept in credit from the inception
of the mortgage.
23. "M's" income was substantially
reduced following the collapse of a commercial tenant, thus reducing
his income by almost 50%.
"M" contacted "RB" and explained the situation.
"RB" confirmed that they would consider placing both
"M's" mortgage and business loan on an interest only
24. After a substantial delay of four months
"RB" arranged to assess the repayment structure of the
complete borrowings including "M's" mortgage. At this
stage there had been one missing payment on one loan
equating to £9,000. However had "RB" acted with
due diligence then it is unlikely that the missing payment would
have occurred or at least remained for any duration.
25. "RB" required various proposals
to discharge the £9,000 arrears, however "RB" failed
to advise the terms upon which they would place "M's"
loans and mortgage repayments from the outset. Further discussions
took place however "RB" were dilatory by reason of which
a further mortgage payment was missed.
26. "M" contacted "RB" on
divers occasions confirming time was of the essence. "RB"
failed to expedite the request and arrears fell upon the mortgage.
Following numerous meetings over 12 months with "RB"
no mention had ever been made regarding the increase of interest
if they acceded to "M's" request to be placed upon an
interest only basis for both his business and personal mortgage
for a period of 12 months.
27. In the meantime substantial charges were
racked up during the course of those 12 months and therefore the
delay by "RB" was extremely self-serving. The situation
escalated with costs escalating out of control.
28. During the delay
further arrears arose upon the mortgage
although this could have been avoided had "RB" acted
with due diligence.
29. During the final meeting "RB" advised
that it was prepared to offer a six-month capital break, however
"M" would have to agree to an increase of 2.5% on his
with a 2% arrangement fee.
In essence the six-month capital break would have cost "M"
over £75,000 which would have increased his liability following
the cessation of the short holiday period.
30. The above would have caused untold hardship.
"M" approached "RB" and in refusing the assistance,
enquired whether his personal mortgage could nonetheless be placed
upon an interest only basis for the duration of 12 months.
31. "RB" confirmed that it was the
not to allow interest only, unless a repayment vehicle was in
32. As there was none "M" received
no help from "RB" despite having over 80% equity in
his home. Moreover the special relationship manager
had the power to allow the request for a capital break upon the
personal mortgage; however he refused as "M" had failed
to take up the offer of a new agreement with associated costs.
33. The policy was both oppressive and failed
to assist the borrower, in any terms unless he accepted a three-fold
increase in the interest payments.
This example serves to show how the lender can be belligerent
to achieve an end to a means, whilst at the same time putting
a family's home at risk in order that they could satisfy targets
based upon the banking policy
34. When those assisting "M" spoke
with "RB" it was confirmed that any relief should be
sought from the court pursuant to the Administration of Justice
and the CPR.
35. Whilst RB refused to assist its borrowers
on an interest only basis,
other lenders offer a much more compassionate approach allowing
for holiday breaks
in the payments structure and of course interest only for a short
period of time.
36. The industry as a whole must establish a
code in which to assist its customers although many responsible
mortgage providers do as much to assist its customers in a positive
and such information is freely available from many lenders.
37. In revisiting our former evidence, the need
for greater transparency remains along with greater accountability
for breaches contained in an oppressive policy agenda.
The protocols have gone some way to assist debtors facing mortgage
repossession, however as the evidence shows over 65% failed to
comply with such protocols, the industry Watch Dog, the FSA should
be more proactive in ensuring that any code or protocols should
be complied with from the start and not left to chance, thus creating
38. Penalty charges clearly should be abolished
and home visits serve very little, save to rack up further charges.
The same elucidation of information, if essential, and could be
obtained via the telephone or letter, thus alleviating the necessity
of incurring further charges.
39. The FSA should be extremely pro-active and
support the abolition of such charges. If additional work is involved,
in dealing with a defaulting borrower, then this should be reflected
both in the work involved and be scrutinised if necessary by the
40. If the FSA is not minded to support abolition
of these punitive sanctions, then it should ensure greater accountability
of those prosecuting such charges. It follows that such a lender
would be hard pushed to justify the escalation of those costs
flowing from a breach, which could amount to £1,380.00 per
annum for administration.
41. Those relying upon penalty charges
should form the body of a public register if a finding of fact
demonstrates a breach of the principles, which amounts to sharp
42. The FSA in being pro-active should be seen
as an enforcer not a mediator, which will give greater credibility
to its role. Without a sting in the tail the FSA carries little
weight in an oppressive market. Sanctions should be imposed upon
the industry found to be falling short of any code and or rules,
and in assessing what amounts to "fair treatment" of
the customer, such a task must be done un-blinkered and reflect
the seriousness of the complaint if proved.
43. In this way greater compliance shall
be formulated thus providing enhanced credibility to the FSA and
more importantly the financial institute whose looks to avoid
the sanctions of the Industry Watch Dog by ensuring a greater
quality of service thus protecting itself as well as the customer.
44. The case of RB, clearly demonstrates
the need to protect customers from oppression, as they are forced
further into debt by the onerous terms. It follows that greater
elucidation upon the facts as well as the mortgage provider would
assist not only borrowers but also those providing the service
of RB to other third parties.
45. In this way RB would ensure that any protocols
would or could stand "public scrutiny" and therefore
we call for the amendment to Section 348, of the Financial Services
and Markets Act 2000. In this way the public should be able to
assess the performance of those providing an essential service,
after all this could affect the stability of the family
and yet with such disclosure the confidence would be a warning
to those who show a scant disregard to compliance of protocols
let alone the industry as a whole.
46. In essence, the greater accountability to
the FSA, then the stronger the consumer confidence in the industry
47. It follows the more pro-active the FSA with
like sanctions, then more confidence will or should lead to fewer
complaints, as providers strive to improve its service to the
consumer, rather than increase complaints,
contrary to the deliberations of the FSA.
48. In this way the FSA will serve not only itself
as the overseer of fairness and justice but will also strengthen
consumer confidence within the industry, thus providing equality
to all seeking and using its service. In this way whilst the FSA
considered greater publicity would or could lead to an increase
in complaints which may turn out not to be justified, thus not
only causing additional burdens on the firm but also disappointing
49. Such an approach is not sustainable if the
FSA is to regulate the industry so often prone to criticism. As
failure to do so will in turn ear mark the FSA for like condemnation,
it is upon this background that complaints must be fully investigated
even if the ultimate decision is disappointing to those seeking
50. It is not good enough to assume that an adverse
finding will dent customer confidence as without true regulation
then the industry has failed as a whole in failing to impose standards
upon itself thus protecting what could become a tarnished industry
by those who are un-committed to the protocols and standards that
should be imposed to maintain and or re-establish confidence within
the financial sector.
8 And author Ascertaining the Boundaries of Legitimate
Judicial Intervention (Human Rights). Back
Dr Heywood and Ramsden having assisted to set up the first Law
Centre in Blackpool. Back
Consumer Credit Act 1974. Back
Such as those financing his/her business with a bank whilst looking
for relief upon the capital repayments to their personal mortgage,
in cases of the bank being effectively a "joint lender". Back
Case M -v- RB [a Bank]. Back
From evidence of AdviceUK; Citizen Advice and Shelter, see: "Turning
the Tide? ". Back
75% failed to comply with the protocol. Back
Mortgage Possession Protocol to be found within the CPR. Back
65% failed to comply. Back
Which very often escalates costs in hearing the various legal
deliberations as to the rights and wrongs. Back
This was to ensure that all steps were taken prior to the commencement
of possession proceedings, thus avoiding, the racking up of or
unnecessary costs. Back
See Mortgage Regulation (February 2010) CAB Submission to the
HM Treasury. Back
Ibid @ P10, where one mortgage provider accepted terms and the
other commenced (2nd Mortgage lender) Possession proceedings for
£350 arrears, thus refusing an offer of £30 per month
off those arrears thus leaving the debtor in relying upon the
discretion of the court. Back
Mortgage arrears and access to mortgage finance [Fifteenth Report
of Session 2008-09] @ P, EV 142-3. Back
From 2008. Back
The policy was with an independent insurance company and unconnected
with the Lender. Back
A delay of three months was encountered. Back
The qualifying period would be dependant upon the type and amount
paid for the mortgage protection cover. Back
In this case it was called "penalty fine". Back
Which is mandatory by some lenders before agreeing terms, whilst
time raising a charge of at least £100. Back
This led to a £45,000 reduction in income leaving M to meet
all the business loan he had financed through RB. Back
This was after a four month delay, however certain conditions
would have to be complied with before consideration could be given. Back
Not the personal mortgage. Back
Six months following the initial request. Back
In one month over £800 costs were incurred, thus adding to
the burden of the delay. Back
Which was self-serving to the bank. Back
Amounting to just over £2,200. Back
From 1.5% to 4% for the duration of the loans. Back
Despite the remaining loans being arrears free and providing over
80% equity. Back
Arguably upon the premise to meet government lending targets on
new loans, which this would not (strictly speaking) have been. Back
Such as an endowment policy. Back
Appointed by the bank to assist customers in financial hardship. Back
Amounting to £75,000 for a six month break in the capital
repayments of his loans and personal mortgage. Back
For "M's" business loan, from 1.5% to 4% plus additional
2% arrangement fee. Back
Imposed upon by the Government to encourage assisting small businesses. Back
Section 8 and section 36 of the Administration of Justice Act
Ibid, unless a vehicle was in place. Back
Northern Rock and Cheltenham & Gloucester Building Society. Back
Mortgage payment break or interest only providing mortgage is
in 75% equity. Back
Such as to be found in RB, which clearly was not only oppressive
but also designed to force a borrower into substantial financial
hardship in complying with the onerous terms thereto. Back
Rules of business. Back
Assuming that was the case. Back
In avoiding disreputable lenders with onerous conditions. Back
See Mortgage arrears and access to mortgage finance [Fifteenth
Report of Session 2008-09]. Back
Ibid @ Para 23 P EV 63, where the FSA claimed that the publicity
could lead to increased complaints from customers. Back