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Deutsche Bank fined for irresponsible mortgage lending

Deutsche Bank has become the first bank to be fined by the UK's Financial Services Authority for irresponsible lending practices. They have been ordered to pay 1.8m euros in compensation to customers.

Deustche Bank building

Deusche Bank is prepared to compensate customers

The British Financial Services Authority (FSA) announced on Monday that is has fined DM Mortgages, part of the Deutsche Bank Group, £840,000 (993,000 euros, $1.2m) for failings in its mortgage lending practices and poor treatment of customers.

Between 2006 and 2008 DM Mortgages originated just under 8,000 mortgages which have all been called into question.

Deutsche Bank will begin a redress program in which affected customers will be contacted and repaid some £1.5 million (1.8 million euros, $2.4m) in compensation.

In a statement released on Monday, the FSA said Deutsche Bank had failed to check whether some customers would still be able to afford their mortgage repayments if their loan lasted into retirement. It also failed to check if cheaper mortgages were available for customers seeking self-service mortgages and where they would live if they planned to sell their homes to pay off their interest-only mortgages.

Unfair charges

Deutsche Bank's treatment of customers in arrears was also deemed inadequate. The FSA found that DB Mortgages did not consider customers' individual circumstances or tell them about a range of options available to them.

On some occasions, they also applied charges that were unfair and did not reflect the cost of administering an account in arrears.

"Firms need to understand that we will not tolerate lax lending practices and unfair treatment of customers in arrears," said Margaret Cole, the FSA’s managing director of enforcement and financial crime.

''Firms which fail in their obligations to customers should expect not only a substantial fine but also that they will have to pay back customers who have been disadvantaged by their failings,'' she added.

Significant improvements

The global investment bank based in Frankfurt, said that DB Mortgages was wound down in 2008 and no longer originates mortgages, although it still services its old mortgages.

"Following the identification of the issues raised by the FSA in an industry-wide review started in 2008, DB Mortgages immediately commissioned a third-party review into its lending and arrears collection processes," said a statement released by Deutsche Bank on Monday.

"As a consequence, DB Mortgages has improved its oversight of mortgage servicing activities," the statement continued.

DB Mortgages qualified for a 30% discount under the FSA's settlement discount scheme after working in an "open and co-operative way."

The FSA say that DB Mortgages has also made significant improvements to its arrears handling procedures. Without the discount, the fine would have been set at £1.2 million (1.4 million euros, $1.9m.)

Author: Charlotte Chelsom-Pill
Editor: Michael Lawton

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