The mortgage lender was hit by the penalty due to "failings" which led some customers to pay more than they needed to.
A British loans firm has been fined £1.1 million - after its borrowers lost money.
The Financial Services Authority (FSA) imposed the penalty yesterday. A total of 684 GE Money Home Lending customers lost an average of £3,000 each due to "failings" at the firm, the regulator found.
Specifically, these centre on "retention clauses" in mortgage contracts, allowing small amounts of the mortgage loan to be held back from customers by lenders. Contrary to industry guidelines, GE Money Home Lending charged interest on this withheld money - and sometimes failed to return it to the borrower.
This therefore resulted in some customers overpaying on their loans.
George Shave at GE Money Home Lending said: "We regret the events which led to this situation and, although the number of affected borrowers was small compared to our overall customer base, we sincerely apologise to those who were affected."
Margaret Cole, the director of enforcement at the FSA, commented: "The firm's failings were serious because a large number of borrowers, including some with impaired or non-standard credit profiles, were put at risk of financial loss."
Since the problems emerged in 2004, when the FSA began regulating the UK mortgage market, GE Money Home Lending has paid back over £7 million to customers in compensation.
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