CML news & views

Our response to the Financial Services Authority (FSA) says that we agree in principle with much of what the regulator is trying to achieve in proposals to change the rules for how lenders should deal with borrowers in arrears. But the proposals should be modified where they are excessive and disproportionate, and some require clarification. In our view, it is essential that rule changes are fair, clear and transparent to all.

One area in which we would like the FSA to modify its proposals is in the recording of telephone calls with customers in arrears. We agree in principle with keeping recorded calls, but believe that the proposal to retain them for three years after the shortfall has been cleared is excessive and disproportionate.

In practice, this proposal could lead to lenders having to keep recorded calls for much longer than three years, where borrowers have their loans re-structured over the life of the mortgage. It is also not clear how the proposals will apply to third parties, such as solicitors or firms employed by lenders to administer arrears-handling work, but third parties may well be affected by the proposed rule changes. Our other concerns include:

• Proposals that require lenders to make significant changes to systems but do not provide a proportionate benefit to consumers. We would like to discuss with the FSA other ways of producing a similar outcome, but at a proportionate cost.
• A lack of clarity on when a borrower is complying with an arrangement to re-pay arrears. We accept that firms should not make an arrears charge where the borrower is adhering to such an arrangement. In our view, however, customers are only complying where they are paying the agreed amount, on the date agreed and using the payment method agreed. This should be set out in the rules.
• When loans will be covered by the new rules. In many cases, they should only apply to new loans entered into after a given date, not to existing loans. 
• We also believe that lenders should not be compelled to agree to forbearance where there is no prospect of recovery by the borrower, or if there is a conflict with other regulatory requirements.
• Lenders should be given sufficient time to change their systems. The FSA should work closely with lenders to understand the time needed to make these changes and to assess whether the costs are proportionate to the intended benefits.

The FSA’s proposal to change the rules for handing arrears is yet another instance where lenders support many of the principles, but are concerned about the ‘devil in the detail’. Our response is based on extensive consultation with firms, and much of it comments on the details. In our view, the proposed rule changes must be scrutinised to ensure they deliver fairness, clarity and transparency, and modified where they do not do so.