Financial Conduct Authority
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FSA demands tough standards from firms dealing with arrears and sale and rent back customers

The Financial Services Authority (FSA) has today set out the rules which will ensure there are proper protections in place for vulnerable customers in arrears on their mortgages or entering sale and rent back (SRB) agreements.

Today’s announcement demonstrates the FSA’s commitment to intensive and intrusive supervision to ensure firms treat their customers fairly. It forms part of crucial next steps following the FSA’s Mortgage Market Review launched last October.

It defines the standards firms must follow on arrears handling and contains details of the full sale and rent back regime, to provide customers with greater protection from 30 June 2010.

The FSA has also confirmed its plans to make all mortgage advisers and those who arrange non-advised sales personally accountable.  They will be required to demonstrate they are ‘fit and proper’, helping to clamp down on mortgage fraud and enabling the FSA to monitor individuals in the mortgage market.

Customers in arrears must be treated fairly by firms and the following key areas have been confirmed;

  • Firms must not apply a monthly arrears charge where an agreement is already in place to repay the arrears;
  • Payments by customers in financial difficulties must first be allocated to clearing the missed monthly payments, rather than to arrears charges, which can be repaid later; and
  • Firms must consider all options for borrowers.  Repossessions should always be the last resort.

A new rule has also been introduced requiring firms to record all arrears handling telephone calls and to keep the records for three years.

From 30 June sale and rent back customers will be better shielded from firms using aggressive or unfair methods.  Some of the full protections include:

  • Banning of exploitative advertising and high-pressure sales techniques and prohibiting the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature;
  • A 14-day cooling-off period to give consumers more time to make decisions on sale and rent back;
  • Banning of cold calling and prohibiting firms from dropping promotional leaflets through letter boxes;
  • Security of tenure for customers for a minimum of five years;
  • Measures to ensure all risks are clearly signposted to the customer, via FSA literature and during the sales process.

Lesley Titcomb, FSA director responsible for the mortgage sector, said:

"With cases of vulnerable homeowners evicted from their homes after 6-12 months after selling to unscrupulous sale and rent back companies, tighter controls were vital.  Sale and rent back is often used by those who want to sell in a hurry to stay in their home, and so it is vital that they are better protected during what is usually a difficult period financially.

"We also think it is wrong that arrears charges should be taken from customers already in difficult circumstances and trying to get their finances back on track.  Today’s rules make absolutely clear the standards we expect of firms, and we have already taken tough action against some of the worst offenders."

The measures announced today will also require that all mortgage sales staff have to be FSA approved or face a penalty and all firms active in the sale and rent back market must be authorised or face potential fines. The FSA is proactively monitoring the SRB market for unauthorised activity, and will take action if necessary. 

Not being treated fairly or having all the facts can be a source of real distress for people in already difficult circumstances. 

Notes for editors

  1. Policy statement 10/9: Mortgage Market Review - Arrears and Approved persons - Including feedback to CP10/2
  2. Policy statement 10/8: Regulatory reporting for sale and rent back firms - Feedback on CP10/4 and final rules
  3. The Sale and Rent Back consultation paper.
  4. The MMR arrears consultation paper.
  5. Customers in financial difficulties or arrears may benefit from information available on the money made clear website.
  6. Information about sale and rent back and a factsheet are available on the money made clear website.
  7.  The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.
  8. The FSA regulates the financial services industry and has five objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.


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