Skipton-based lender Redstone Mortgages has been fined £630,000 and ordered to pay customer redress for unfairly treating customers in arrears.
Between 1 January 2007 and 5 August 2009, the company consistently failed to ensure its staff were acting in the best interests of clients, the FSA found.
Among a number of failings, it focused on reducing customers' arrears to less than two months regardless of their clients' circumstances and charged customers excessively.
In some cases, it included arrears fees and charges in the balance on which an early repayment charge was calculated.
Redstone has agreed to redress customers who were charged unfairly while they were in arrears. The FSA estimates the redress will cost the firm up to £500,000.
It became the third lender referred to enforcement following the FSA's thematic review of firms' mortgage arrears handling. Final notices were also given for GMAC-RFC and Kensington Mortgages.
Margaret Cole, FSA director of enforcement and financial crime, says: "Many of Redstone's customers were in a vulnerable position, having fallen into arrears on their mortgage payments, and firms should not charge such customers excessive and unfair fees.
"Rather than assessing each customer's personal and financial circumstances on an individual basis, the firm was applying a one size fits all approach by aiming to reduce arrears to less than two months.
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