According to today’s Guardian, a group of MPs have accused the Financial Services Authority of failing to protect homeowners from aggressive mortgage lenders during the current economic crisis.

MPs on the treasury select committee said the FSA appears to take a leisurely approach to its job while many homeowners were being left at the mercy of lenders who charge excessive fees and move quickly to repossess homes if borrowers fell in arrears.

John McFall,  the chairman of the committee, said that sub-prime lenders were the worst offenders, and only rapid action by the regulator can bring relief to badly affected families on low incomes.

Mr McFall said:

 ”We suspect that the small number of cases being brought against lenders making excessive arrears charges are merely the tip of the  iceberg. This is why it is so important that lenders  are compelled to open up their books and justify their charges, while the FSA must be  prepared to take decisive action where it finds evidence of wrongdoing.”

He said the committee was extremely concerned by evidence that many sub–prime lenders and finance companies offering second mortgages were repossessing homes at an alarming rate under the noses of the FSA and the Office of Fair Trading, which regulates credit licences.

“The FSA and the OFT must get a grip on this problem and crack down on lenders who are breaking the rules and mistreating customers in arrears,”.

He pointed to a statement in 2007 by the FSA that lenders were failing to treat their customers fairly when they fell into mortgage arrears.  More than a year and a half later, in June 2009, the FSA announced it was taking enforcement action against four firms.  In between, more than 40,000 homes had been repossessed.

“The seemingly leisurely approach of the FSA in terms of completing its mortgage arrears review [launched two years ago] and enforcing possible breaches in the rules in the area of mortgage arrears is a matter of grave concern.  We call upon the FSA to spell out clearly how it will improve its performance in terms of bringing miscreant firms to book.”

The FSA denied it was slow to tackle misconduct and protect consumers. It said the wide-ranging review needed to establish what was going wrong before changing the rules.  The review is planned to appear in the autumn.

“We take a robust position with firms as soon as we have evidence of wrongdoing and also to ensure borrowers are treated fairly throughout the lifetime of their mortgage,” a spokesman said.

Consumer groups have also maintained that regulators and the government have put more emphasis on looking after the finances of the banking industry than offering support to hard-pressed borrowers.

The Conservative treasury spokesman, Philip Hammond, said the FSA has forfeited its right to remain the regulator of the finance industry.

“It is clear the behaviour of some mortgage lenders towards vulnerable homeowners has been completely unacceptable, yet the FSA has failed to intervene effectively,” he said.

The consumer groups Citizens Advice and Which? told the committee many low income families had to fend for themselves against their lenders once they fell into arrears.  While most mainstream lenders were judged to use repossession as a last resort, sub-prime lenders commonly issued a court summons within weeks of borrowers falling behind with payments.

Mick McAteer, a member of the Financial Inclusion Centre thinktank, said many repossessions were not showing up in official figures because some sub-prime lenders refused to publish statistics.

“The problem is much worse than we think because official figures don’t show the whole picture. Many of the sub-prime lenders have gone out of business or sold the loans to another lender.  Homeowners then find their new lender just wants to get their money back and pushes for a repossession order.”

The committee also had criticism for the government, which it said had failed to draft measures to support homeowners in financial difficulty.  It criticised the government’s Mortgage Rescue Scheme, which ministers said could help 6,000 households, but has only been offered to six.