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CML and FCA clarify position on arrears charges


Published: 4 March 2014 | Author: Bernard Clarke

Recent media coverage has presented the erroneous idea that customers who miss mortgage payments can only face arrears charges when they are at least two months behind with their payments.

In fact, rules overseen by the Financial Conduct Authority (FCA) do not specify any minimum period of arrears before the customer may be liable for charges resulting from missed payments. 

What they do stipulate is that, where a customer is two or more months behind in payments (the FCA Handbook’s definition of arrears), any charge levied by the lender must be a reasonable estimate of the additional administrative cost of managing the account in arrears.

But new rules being introduced by the FCA from 26 April, as part of the mortgage market review, should make the position clearer on new mortgages. They will reinforce the principle that any charge levied on the customer should only seek to recover administrative costs incurred by the lender, including where a customer is less than two months behind in payments. 

The wording of the FCA’s new rule (MCOB 12.4.1R), covering payment shortfall charges, says:

“A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, a charge or charges for a payment shortfall on a customer unless the firm is able to justify that the charge is equal to or lower than a reasonable calculation of the cost of the additional administration required as a result of the customer having a payment shortfall.”

Recent media coverage of a case involving one lender included widespread misreporting of claims that any borrower with any lender had to be in arrears for at least two months before they were liable for arrears charges.