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FCA to consult on mortgage arrears remediation guidance

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The Financial Conduct Authority has identified a number of firms that have automatically included customers’ arrears balances in mortgage payments and is to create guidance on this practice.

The authority will consult on the matter from today, 19 October, for three months to create guidance covering remediation for mortgage customers who may have been affected when lenders and administrators automatically include arrears balances in mortgage payments, which are recalculated from time to time.

The consultation follows a rule introduced by the FSA which dictated that firms must not automatically capitalise a payment shortfall where the impact on the customer would be material.

Through working with an industry group, which represents 66 per cent of the market, the FCA identified that the issue affects an estimated 750,000 customers, a number which may have increased following the Bank of England’s base rate cut in August, which could have led to recalculation of mortgage payments for some customers.

It is expected that the amount of remediation will run in the low hundreds of pounds per affected individual.

FCA director of supervision, Jonathan Davidson, says “Even if inadvertent, automatic capitalisation of arrears can lead to poor customer outcomes and firms need to put this right, and make sure the practice stops.

“Customers do not have to take any action at this stage, as firms will contact them directly.”

He said firms should start identifying affected customers immediately and not wait until the finalised guidance is published.

The authority said that when firms have not extinguished arrears, some are collecting these repayment shortfalls through mortgage payments while also continuing to pursue the arrears through their collections processes, treating them as immediately payable.


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