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The fair treatment of mortgage customers in payment shortfall: impact of automatic capitalisations

Last updated: 18 Jan 2017

Consulting body:
Financial Conduct Authority
Period of consultation:
Runs from 31 October 2016 to 18 January 2017
CML action:
Response submitted

The FCA has decided that the previous practice of some lenders of collecting arrears balances through a recalculated contractual monthly installment (CMI) is incompatible with MCOB, and has therefore proposed that mortgage lenders adopt a different approach to the calculation of mortgage arrears.

The proposed changes may also involve lenders paying compensation to borrowers or refunding payments which could also affect the outstanding mortgage amount in existing RMBS (residential mortgage) transactions.

We are concerned that a number of the mortgages that will be affected by the change in calculation methodology will have been securitised and are therefore seeking information on the impact such a recalculation will have on existing residential mortgage back securities. 

CML response

The CML welcomes the constructive approach that the Financial Conduct Authority (FCA) took to developing their proposed remediation framework and their engagement with the industry.

We note in particular paragraph 3.1 of the consultation which states that “This guidance consultation sets out a possible framework (the framework) firms could use when providing remediation to affected customers. We do not propose to require firms to adopt this particular approach. It is for firms to determine their own approach which will ensure fair outcomes for customers.”

We believe this is the right approach.

Lenders should be free to develop their own frameworks for remediating affected customers, ensuring that they align with existing regulations and the spirit of the framework set out in the consultation.

Our comments in the CML response document below follow the structure established by the FCA’s 15 questions.