Financial Conduct Authority
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FSA sets out new steps to ensure that borrowers in arrears are treated fairly and to reduce levels of mortgage fraud

The Financial Services Authority (FSA) has today set out a package of measures that will help to ensure that mortgage holders in arrears are treated fairly and which reinforces the FSA’s tough stance in its battle against mortgage fraud.

The proposals strengthen existing rules on arrears handling - one of the urgent issues flagged in the Mortgage Market Review discussion paper last October.

 This reflects other ongoing work carried out by the FSA, which uncovered high levels of consumer detriment particularly in the specialist lending sector.

The key arrears proposals:

  • Make plain that firms must not add early repayment charges on arrears charges and interest levied on those charges;
  • Clarify that firms must not apply a monthly arrears charge where the firm and the customer have agreed an arrangement to repay the arrears;
  • Compel firms to consider all options for borrowers.  Repossessions should always be the last resort;
  • Confirm that 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
  • Oblige firms to record all arrears handling telephone calls and to keep all records for three years.

New proposals will also mean all mortgage advisers and those who arrange non-advised sales will be individually accountable to the FSA, and need to demonstrate  they are 'fit and proper' for their role.

Extending the approved person regime will also have significant benefits for consumers.  The FSA made it clear through its review of the mortgage market that it wanted a strong, viable and clean marketplace and its requirement for mortgage advisers to prove they are fit and proper will help to remove dishonest individuals from the industry and to keep them out.

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

"Today’s proposals underline the standards that firms must meet and will help to ensure that homeowners in financial difficulties are treated fairly. Lenders need to be in no doubt of their obligations to customers who fall behind with payments and must realise that such circumstances are not an opportunity to create further profits."  

Notes for editors

  1. Approved Persons: the FSA proposes creating a new category of approved person - customer function CF31 - which will be for all individuals who advise or bring about home finance business now and in the future.  This is whether on behalf of an intermediary firm or a home finance provider.

    Firms will be required to have in place a named individual, likely to be a director or a senior manager, who is responsible for compliance and compliance oversight of the firm’s regulated activities for home finances intermediaries and home finance providers (CF10) the compliance oversight function.

    The Consultation Paper (CP) proposes all mortgage advisers are personally accountable to the FSA; CP proposes extending the Approved Persons regime to mortgage advisers who deal with consumers and to advisers and/or arrangers who are responsible for overseeing compliance.
  2. The Approved Persons proposals apply to those advising on arranging non-advised sales in relation to regulated mortgage contracts, regulated sale and rent back agreements, home purchase plans and home reversion plans.
  3. Arrears: The FSA published the results of a review on 22 June 2009 which found continued weaknesses in the way specialist lending firms and third party administrators were handling mortgage arrears and repossessions. In many cases it found a high incidence of mortgages moving straight into arrears and potential breaches of responsible lending rules.
  4. This consultation paper forms the first follow up to the Mortgage Market Review discussion paper.  Consultation on these proposals will close on 25 April 2010.
  5. The FSA regulates the financial services industry and has four 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; and fighting financial crime.