DB Mortgages has become the first firm to be fined by the city regulator for irresponsible mortgage lending.
An investigation into the firm – which is part of the Deutsche Bank Group – found that customers in arrears had been treated unfairly and others were given poor advice.
DB Mortgages has been fined £840,000 by the Financial Services Authority (FSA), while compensation totalling £1.5 million for customers has been secured.
On lending practices, DB Mortgages failed to show that customers could afford mortgages sold where the term continued after their retirement and failed to consider whether there were cheaper mortgages available for customers seeking self-certified mortgages.
The firm also failed to ensure that customers had thought about where they would live at the end of the term if they needed to sell their house to pay off an interest-only mortgage.
On treatment of customers in arrears, DB Mortgages did not consider customers' individual circumstances or tell them about the range of options that were available to them, and applied charges that were unfair because they were charged repeatedly or did not accurately reflect the cost of administering an account in arrears.
"This is the first time that we have taken enforcement action against a firm for irresponsible mortgage lending," said Margaret Cole, the managing director of enforcement and financial crime at the FSA.
"Firms need to understand that we will not tolerate lax lending practices and unfair treatment of customers in arrears.
"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."
All customers who are affected will be contacted by DB Mortgages, although any queries can be fielded by calling 0800 083 1203.
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