An investigation by the Central Bank has ruled that mortgage lenders cannot impose legal fees on customers in arrears if they are co-operating and engaging with their lenders.

A Central Bank investigation into the practice whereby banks and mortgage lenders imposed legal fees, and a surcharge interest on arrears has just concluded.

Banks have been reminded of their obligations under the Consumer Protection Code.

The investigation concludes that applying legal costs to borrowers prior to repossession proceedings being concluded is "not in the borrower's best interests".

The investigation also concludes that charging interest on any legal costs applied is in contravention of the EU's Consumer Mortgage Credit Agreements Regulations.

The Director of Consumer Protection with the Central Bank, Gráinne McEvoy, has written to all the leading lending institutions to advise them of the outcome of the investigation.

In the letter she asks the big banks to confirm in writing that they have reviewed their practices.

Reacting to the news, David Hall of the Irish Mortgage Holders Association, said the move from the Central Bank was, "belated but welcome".

"Aadding legal fees is a practice that has caused many people harm and has added to a very distressing situation for many people," Mr Hall added.