You will recall the FSA statement on mortgage exit administration fees (MEAFs) of 26 January to which the Council of Mortgage Lenders (CML) was party to. In this statement the lenders were given several options to amend or maintain their MEAF and had until 28 February 2007 to make their decision.
The statement raised many questions about the MEAF and apart from the issue of whether customers were being treated fairly, it questioned if the current fees charged by your members were lawful based on the Unfair terms in Consumer Contract Regulations 1999.
You, yourself have referred to the MEAF as ‘an administration charge that was not a penalty for leaving a lender and it should be a legitimate cost which relates to the service – the admin – which has been undertaken, in your interview on the MoneyBox programme on 24 June 2006.
Money Box 24th June 2006
COOGAN: it’s a legitimate cost which relates to the service, the admin which you’ve undertaken. And clearly if you’re simply closing a mortgage contract, then that is a set series of activities, which has a certain price and a cost in terms of staff, etcetera. If you are broadening that out to cover other transactions or other aspects of the mortgage relationship, you need to explain to your customers what it covers. If you’re not clear, then the FSA would argue and it seems the law indicates quite clearly, that you should have a clear statement as to what the charge is for. If you plan to change it and you don’t make clear why you’re changing it, then you’re not going to be able to do so. It would be unfair.
LEWIS: So if they’re open-ended, if a lender simply says that can put them up at any time, effectively for any reason, that would be unfair and should not be in the contract?
COOGAN: You can’t have a valid reason you just want to increase your profit levels. I think what you do is the need to explain each of your costs as and when they increase. And you have the ability to do that, so that’s why you have some fees which a re variable.
LEWIS: The people who pay these exit fees, by definition they’re ex customers. Is that the problem – that your members just think they can sting them on the way out as a penalty for leaving and finding a better deal somewhere else?
COOGAN: I don’t think it’s at all to do with a penalty. Penalties aren’t allowed if you are charging a fee for the administration service.
Having past 28 February, your members have made very little effort to lower their MEAFs to reflect this as an administrative fee, as you have agreed it is. When lenders have been challenged to define how this charge is calculated, none to my knowledge have done so.
My questions therefore are as follows:
- Do you agree with your statement of 24 June 2006 that the MEAF is an administration cost and it should reflect this?
- Do you still agree with your statement that lenders need to explain each of their costs?
- If you still do agree with your statements, why is it that lenders will not disclose the basis of their calculation of their MEAFs?
- If the latest Vertex survey on mortgage processing costs of lenders conducted in consultation with the CML showed that the entire processing costs of a mortgage were on average £132.85, do you agree that this is a longer administrative process than the closing of a mortgage?
- Do you agree that the Defaqto estimate of the true cost of closing a mortgage of around £35 is likely to be about right?
- If you agree your own survey conducted with Vertex is correct and agree the Defaqto figure is about right, can an admin cost of on average around £200 by lenders be honest?
The Mortgage Practitioner
