Court threat to lenders as Halifax tops list for unfair practices

The Consumers' Association yesterday threatened to take Britain's biggest mortgage lenders to court over alleged unfair terms in their home loan contracts, and named the Halifax as the worst offender.

The CA's assault brings the likelihood of statutory regulation of mortgages much closer after the government said it was "disturbed" by the full extent of what the organisation's investigation had uncovered.

Its "name and shame" roll-call listed the 10 companies attracting the most complaints. The Halifax was followed by Abbey National, Northern Rock, Woolwich, Nationwide, NatWest, Alliance & Leicester, Bristol & West, Bradford & Bingley, and Barclays. The broadside came 24 hours after ministers announced proposals for new minimum standards for mortgages.

Top of the list of alleged "scams" used by the industry are "unfair" early redemption penalties which lock people into loans, said the CA. Others include mortgages which force people to buy the lender's expensive home insurance and punitive arrears fines.

On October 1 the organisation was given new powers by the department of trade and industry to challenge unfair contracts in court. It has written to the 10 named companies and 10 other undisclosed lenders setting out the supposedly unfair terms in their loans and calling on them to drop them immediately. They have been given a deadline to respond of November 5.

If the companies do not engage in a "sensible discussion" the CA will consider going to court to seek an injunction preventing the continued use of "unfair small print". While the CA is unable to obtain redress on behalf of affected borrowers, if a court were to decide that the terms were illegal, it would potentially open the doors to a flood of compensation claims.

Ashley Holmes, the CA's head of legal affairs, said: "If any of these big players fancy saying 'see you in court,' we will see them in court." Calling for the £90bn-a-year mortgage sector to be policed by the financial services authority, CA director Sheila McKechnie said: "This industry has a rip-off mentality. It will not change unless it is forced to."

An investigation into nearly 1,000 contracts found that early redemption penalties generated by far the most complaints. One borrower with a £60,000 NatWest mortgage was quoted a redemption penalty of £41,000.

Calculation of interest on an annual rather than daily basis was the subject of more than a sixth of complaints.

Halifax denied the claims and said it wanted a meeting with the CA. However, the trade and industry secretary, Stephen Byers, said he was disturbed by the report. He has summoned the 10 largest lenders to a summit on October 29.