Exorbitant Fees For Debt Advice

Borrowers struggling with mortgage repayments are being hit by new fees. Exorbitant charges are being levied on borrowers asking for advice about handling debt by various top banks.

Independent advice is available free from charities, but the Halifax is charging £100 for debt counselling and so does GMAC-RFC. Nationwide is charging £95, Lloyds TSB and £94 and Abbey’s charge is £80, while Northern Rock describes its charge as ‘variable’.

Lenders have been accused of forcing those in difficulty deeper into debt. Things have been bad enough for borrowers after five interest rate rises since last August, and the rate has gone up from 4.5% to 5.75% in that time. Over the next 18 months this will give two million borrowers coming off cheap fixed rate deals from two years ago grave repayment difficulties. Already the number of homes being repossessed has gone up by 30% in the last 12 months, with 14,000 homes repossessed in the first six months of 2007. Borrowers are advised to contact their lenders in the event of difficulties as they may be able to help. In fact, it would be better to contact a charity such as the Citizens’ Advice Bureau (CAB) who make no charge for help with debt. Advice from the CAB is also impartial and can help with all finances, not just the mortgage, like counsellors from the mortgage company care able to do.

Moira Haynes, from Citizens' Advice, says: “Insisting that people see a debt counsellor appointed by their lender and then charging them a hefty fee for the privilege is just a recipe for driving people deeper into debt. It's bad practice and should be stamped out. Banks and other lenders should instead be urging customers with credit debt or mortgage arrears to get free and independent debt advice.”

The defence that lenders put up is that their counselling services are only taken by choice, offered only as a last resort. Some lenders take a more sympathetic view. There is no charge by Accord Mortgages, part of Yorkshire Building Society, and Barclays and RBS/NatWest refer borrowers asking for advice to charity advisers.

These fees are the latest of a string of exorbitant charges from mortgage companies on struggling borrowers. Moneysupermarket.com has highlighted them in a report. They include a £35 from Halifax for every call or letter on the subject of arrears, and a charge of £55 by Northern Rock for anyone more than two months in arrears. The latter also charges £1,400 to repossess a property, change the locks, insure the property and sell it.

Experts say that people will not realise the extent of possible fees for simply making a call or writing a letter, and that customers should be treated fairly.

Borrowers should be able to seek compensation for these fees in the same way thousands of people hit with other unfair bank charges already have. The Office of Fair Trading says the principle that fees should reflect the cost to banks – in the same way as with current account and credit card penalties - also applies to mortgage arrears.

The Financial Ombudsman Service - while bank charge cases are on hold pending the result of a landmark test case - says it can still deal with mortgage arrears claims. If you think the charges are higher than the administrative cost to the lender your first complaint should be to your lender. If your provider refuses to refund you, your next stop is the Ombudsman.

Tom Smith
11th September 2007

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