"Unfair Contract Terms" Defences to Possession Claims

The FSA imposed a financial penalty of £1.225m on Kensington in respect of its failure to implement and maintain adequate compliance monitoring processes and procedures in relation to its mortgage arrears and repossession activities.

Specifically in relation to arrears charges, the FSA found that excessive or unfair charges were imposed for a returned direct debit which was charged on each re-presentation of the direct debit, regardless of the number of times it had already been returned unpaid; a fee for a cancelled direct debit, which was excessive in light of the associated administration costs; and the imposition of ERC on a mortgage balance which included arrears fees and charges within that balance.

A further five enforcement cases are pending.

This, together with the FSA’s finding in respect of unfair charges levied by GMAC, will not assist lenders faced with defences to possession claims, where the borrower alleges that fees and charges added to the mortgage balance are unfair or are not a genuine pre-estimate of the administration costs incurred by the lender or its TPA. An adverse finding by a court, even at first instance, would be detrimental and our advice will continue to be that “unfair contract terms” defences should not ordinarily be challenged by lenders. Efforts should be made to negotiate a compromise with the borrower which may involve writing-off all or some of the arrears charges complained of.