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In a statement the regulator said the fine covered the period between 31 October 2004 and 30 November 2008 when it said GMAC-RFC failed to treat customers fairly in its treatment of customers experiencing arrears and repossessions.

The lender was found by the FSA to have made "excessive and unfair charges" for customers which it said did not reflect administration costs.

It also proposed payment plans that did not always consider a customer's individual circumstances, had inadequate training of mortgage servicing staff in handling of arrears and repossessions, and issued repossession proceedings before fully considering all the alternatives, according to the FSA.

The fine was also reduced from £4m after GMAC-RFC qualified for an early settlement discount of 30 per cent.

Margaret Cole, director of enforcement and financial crime, for the FSA, said: "This case shows credible deterrence in action. It is an excellent example of what the FSA's more intrusive approach can achieve for consumers, and it reflects what we said in our mortgage market review about unfair mortgage arrears charges.

"Mortgage lenders and third party administrators should read this final notice and the mortgage market review and take action in the interests of their customers."

A statement issued by GMAC-RFC in response to the fine said: "We want to apologise to customers affected. We have worked openly with the FSA to review and revise our procedures for managing accounts in arrears.

"We have been able to work quickly as a result of cooperation with the FSA and changes already made to our procedures and training programmes over the last 18 months. Furthermore, we have established a customer contact and redress programme in relation to certain arrears charges."

"While our arrears charges were in line with the market, in hindsight, we fully accept that for certain fees our estimates of the costs were not proportionate to the additional administration actually required. We will be writing to customers who incurred these specific charges when in arrears and will re-credit the charges plus interest."

Hannah-Mercedes Skenfield, mortgages channel manager for Moneysupermarket.com, said: "This should act as a serious warning to all those lenders treating their struggling customers in a heavy handed manner."