The Financial Services Authority is proposing to tighten its rules on lenders’ arrears management processes in response to issues flagged up in last year’s Mortgage Market Review.
The FSA says its crackdown on arrears handling also reflects its ongoing work in this area, which it says has uncovered high levels of consumer detriment – particularly in the specialist lending sector.
The key proposals from the regulator are to:
- Make it plain that firms must not add early repayment charges onto their arrears charges or any interest that might be levied on those charges.
- Clarify that companies must not apply monthly arrears charges in a situation where the lender and the borrower have agreed an arrangement to repay arrears.
- Compel lenders to consider all options for borrowers – in other words, repossession should always be a last resort.
- Confirm that payments by customers who are experiencing financial difficulties should first be allocated to clearing any missed monthly payments rather than be put towards paying off arrears charges which can be repaid at a later date.
- Oblige companies to record all telephone calls made in relation to the subject of arrears, and keep all records for three years.
Meanwhile, the regulator plans to extend its approved persons regime in the mortgage sector, saying such an expansion will bring significant benefits for consumers.
The FSA says it made it clear through the MMR that it wanted a strong, viable and clean marketplace in the mortgage sector and its requirement for advisers in that market to prove they are fit and proper to perform their role will help to remove dishonest individuals from the industry and keep them out.
Lesley Titcomb, the FSA director responsible for the mortgage sector, says: “Our latest proposals serve to highlight the standards that firms in the mortgage market must meet, and they should help to ensure that home owners in financial difficulty are treated in a fair manner.
“Lenders should be in no doubt with regard their obligations to customers who fall behind with payments. They must realise that such circumstances are not an opportunity for them to generate more profits.”