The proposals strengthen existing rules on arrears handling - one of the urgent issues flagged in the Mortgage Market Review (MMR) discussion paper last October.
The also reflect 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.
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."
This consultation paper forms the first follow up to the Mortgage Market Review discussion paper and consultation on these proposals will close on 25 April 2010.
