FCA revises its definition of ‘payment shortfall’ for mortgage borrowers

The Financial Conduct Authority has agreed to revise the definition of ‘payment shortfall’ in its Mortgage Conduct of Business rulebook.

In June, the regulator consulted on making minor amendments to the handbook outlining rules and guidance for firms with customers experiencing a mortgage or Home Purchase Plan (HPP) payment shortfall.

A payment shortfall was defined in the handbook glossary as: ‘the total sum of periodic payments of capital or interest (or both) that have become due under the terms of a regulated mortgage contract but which, in breach of those terms, remains unpaid. The effect of this is that for a regulated mortgage contract, a payment shortfall excludes any amounts that are not immediately due and payable under a mortgage contract.’

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Following a consultation on CP16/16, feedback from two respondents was that the phrase ‘not immediately due and payable under the mortgage contract’ was ambiguous.

The regulator has agreed to remove the phrase, saying it is “content that its removal will not reduce consumer protection or change the meaning of the payment shortfall definition.”

Further feedback that the payment shortfall definition should not refer to periodic instalments of ‘capital or interest (or both)’ as it was ‘potentially ambiguous’ was rejected with the regulator stating that the definition would not be clear that the periodic instalment in question is the customer’s CMI (Contractual Monthly Instalment) without the reference.

Read the full paper here.