The Mortgage Lender GMAC RFC Fined £2.8 Million

The Financial Services Authority has fined GMAC-RFC £2.8m for failing to treat customers fairly and secured redress of up to £7.7m (plus interest) for over 46,000 mortgage customers.

Between 31 October 2004 and 30 November 2008, a number of serious failings by GMAC-RFC were identified in relation to its dealings with customers experiencing arrears and repossessions.

These included excessive and unfair charges for customers that did not reflect administration costs, proposing repayment plans that did not always consider a customer’s individual circumstances and inadequate training of mortgage servicing staff in handling of arrears and repossessions.

The lender was also issuing repossession proceedings before fully considering all the alternatives.

The case sets a precedent, with the FSA concluding this investigation in a matter of weeks, and the firm working with the FSA to agree a process to enable customers to receive redress as quickly as possible.

As a result of early settlement, the firm qualified for a 30% discount under the FSA’s settlement discount scheme.  Without the discount the fine would have been £4m.

The FSA announced in June that four firms had been referred to enforcement for investigation and several more firms were being assessed for referral.

In many cases the FSA found a high incidence of mortgages moving straight into arrears and potential breaches of responsible lending rules.

Margaret Cole, director of enforcement and financial crime, says: “This case shows credible deterrence in action.  It is an excellent example of what the FSA’s more intrusive approach can achieve for consumers, and it reflects what we said in our Mortgage Market Review last week about unfair mortgage arrears charges.  Mortgage lenders and third party administrators should read this final notice and the Mortgage Market Review and take action in the interests of their customers.”

Alan Cleary, managing director of Exact, says that the scale of the fine shows that the spotlight is firmly on third party administrators and lenders, and the FSA has shown that it means business.

He says: “All mortgage servicers will need to have the very best, most up-to-date arrears handling processes to demonstrate they are treating their customers fairly and not rushing them to court.”

A spokesperson for GMAC-RFC says: “We want to apologise to customers affected.  We have worked openly with the FSA to review and revise our procedures for managing accounts in arrears.

“We’ve been able to work quickly as a result of cooperation with the FSA and changes already made to our procedures and training programmes over the last eighteen months.  Furthermore, we have established a customer contact and redress programme in relation to certain arrears charges.

“Whilst our arrears charges were in line with the market, in hindsight, we fully accept that for certain fees our estimates of the costs were not proportionate to the additional administration actually required. We will be writing to customers who incurred these specific charges when in arrears and will re-credit the charges plus interest.”

Details of fees to be redressed include:

  • Charges for non payment of the monthly mortgage payment by Direct Debit when in arrears (average refund £117)
  • Early Repayment Charges applied to arrears fees and charges (average refund £14)
  • Part of the solicitors instruction fee which was more than the actual cost  (average refund £45)

The company will be sending a letter with details of the redress programme to any customer with a mortgage in arrears who was charged one of the above fees since 1 November 2004. Following this communication, existing customers of GMAC-RFC will receive an automatic re-crediting of the charges plus interest to their mortgage account.

For past customers who were in arrears and have already redeemed their mortgage with GMAC-RFC, the company will send a letter to the last known address to arrange a refund.


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