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A case was submitted online on a Friday by one of our consultants to a lender and the booking fee was added to the loan. On the Monday the client rang the adviser as the interest rate had been reduced and they wished to swap to the new rate. The adviser contacted the lender and was informed this was acceptable. However they would have to pay another booking fee to secure the new deal. Apparently in the small print the lender stated they reserved the right to recover the booking fee if the client pulled out. Is this treating customers fairly? Brian Rossiter, Armchair Mortgages, Ellesmere Port

Emma Tyler, The OFM Group, Southend

Dear Brian,

Most lenders offer the option to pay up front, at which point they usually make the adviser aware the charge is non-refundable if the client pulls out at any stage for any reason. If this is explained to a client they can make an informed decision whether or not to take that risk.

However, it does interest me the lender would still look to recover the booking fee even though the client was staying with them. The lender is still going to get the business from the client and the new product will have its own relative booking fee and costs involved. Whether or not it falls outside of treating customers fairly is arguable. Technically, outcome three "consumers are provided with clear information…" is debatable as we do not know how much of that information was filtered back to the client initially. However it is outcome one "consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture" where you may argue treating customers fairly has not been applied. A lender cannot argue fair treatment of their customers is central to their corporate culture when charging two booking fees within days, especially considering the client is staying with them and simply moving to a new product. Although legally we cannot argue the lender has done anything wrong, I do feel it is unjust.

Peter Leydon, Nationwide, Swindon

Dear Brian,

The FSA has 11 principles of business. Principle six states "a firm must pay due regard to the interests of its customers and treat them fairly". The FSA has further defined six consumer outcomes to explain what they want treating customers fairly to achieve for consumers.

In addition to TCF, mortgage charges are also covered by the Mortgage Conduct of Business. When a customer applies for a specific product then, depending on the funding approach a lender uses, it may reserve the requested funds at that time, for example ahead of completion. In such cases if a borrower subsequently decides to switch to another mortgage product, which is more likely in a falling rate environment, the lender may be exposed to loss in exiting from funding contracts that are no longer required. Switching products also involves additional cost and processing for the lender.

Lenders can choose how they wish to protect themselves from any loss and how they wish to cover their costs. Should they choose to do so then charging a fee, which is clearly identified as non refundable within the key facts illustration, does not contradict a lender's requirement to treat customers fairly.

Colin Dale, Skipton Building Society, Skipton

Dear Brian,

The customer was treated fairly. Ultimately, it was their choice to swap to the reduced rate, they were not coerced by the lender. Circumstances would have been different if the product had been withdrawn.

By signing up to a mortgage, the customer makes a commitment. Switching to another deal afterwards breaks this promise and therefore the lender must be compensated. The tariff of charges makes this clear. Of course, better deals may emerge after borrowers have signed on the dotted line but that is always the case. However most lenders do not have upfront booking fees. For many, charges are made after a signed application has been received. Why have these fees? Well, lenders need to cover their costs, including the work already carried out on an application, should a borrower pull out.

Not only that if borrowers make a habit of swapping deals mid-application then the lender cannot raise new funds. No new funds equals no cheaper deals. Despite the perception, these fees actually serve to protect the borrower by reserving their mortgage rate. Lenders cannot enforce a different price after a mortgage has completed and in the current climate, where rates are on the rise, this should give homeowners some peace of mind.

Paul Fisher, Premier Network Group Ltd, Leicester

Dear Brian,

This is one area of the mortgage business that definitely hits a raw nerve. It is disgusting that lenders are allowed to get away with this. It seems to me the FSA allows lenders and the bigger regulated companies to ride roughshod over their customers in this way but then again it is easier to target small firms.

If treating customers fairly is really at the forefront of all our businesses then something has definitely gone wrong here. Consider this quote from the FSA's TCF self-assessment tool "how have you included TCF into the way you run your business and your firm's values?" Then ask yourself if this has been applied in the case cited above. It would seem that the answer for the lender above is "Yes, we have until we can make a bit more money". I do wonder if this application was even looked at before the Monday.

We all appreciate there is a cost in changing anything but I thought we were in the electronic age. What real costs have actually been incurred? The public seem to be bringing banks to justice on a regular basis for unnecessary charging around current accounts, maybe the regulator should be taking a closer a look at the charges around lending. Exit penalties are also creeping up. Perhaps lenders should impose realistic costs instead of hiding them in low interest rates and start giving real value for money.

Andrea Kinnear, FSA, London

Dear Brian,

We believe that this is treating customers fairly provided the lender stated clearly in the terms and conditions of the loan the booking fee would be recovered if the customer withdrew from the deal.