Mortgage Market Review: Arrears Consultation CP10/2

On 26 January 2010, the FSA published the first consultation paper from the Mortgage Market Review discussion paper relating to arrears and approved persons (CP 10/2).

The deadline for responses to the CP was 30 April 2010.

The CP contains two parts, the first on changes to how lenders manage borrowers in difficulty, including restrictions on charges and fees. The second relates to the requirements for mortgage advisors to become Approved Persons.

The BSA response to the Approved Persons CP can be found on the BSA website.

The full CP can be accessed via the link below:

MMR: Arrears & Approved Persons CP 10/2

Response by the BSA

The full response by the BSA can be accessed via the link below:

BSA Response to the Arrears Consultation (CP 10/2)

Summary of the BSA response

• The BSA is supportive of the consistent outcomes that the FSA aims to achieve. However, we do not believe that the poor practices identified in some lenders are indicative of the industry as a whole. Building societies, mutual lenders and the vast majority of high street lenders abide by the current rules as required by the FSA. They adopt approaches that are fair and meet the needs of the both the borrower and the lender.

• The recent enforcement against GMAC RFC and Kensington does not demonstrate a failure of existing MCOB rules and guidance, but a failure of supervision and enforcement of the rules. Without effective supervision, the proposals detailed in the consultation paper will not prevent such behaviour from occurring again in the future. The consumer detriment identified in these firms will be more effectively dealt with through better supervision, rather than wholesale changes to the conduct of business rules.

• We recognise the steps the FSA has taken recently to enhance the supervisory teams, to ensure supervision is targeted and effective. We believe that it would be sensible to assess the full impact of the supervisory changes prior to making changes to the conduct of business rules. This will ensure rule changes are targeted in areas where consumer detriment remains.

• We are very supportive of the aim to increase standards of compliance within firms, but do not believe that all of the proposals are proportionate to the scale of the issue. They will impose substantial costs on the industry which are disproportionate to the consumer benefits. For building societies and mutual lenders these costs will ultimately be borne by their members.

• The BSA supports the proposal to prohibit monthly arrears charges, where the customer is maintaining an arrangement to repay the arrears. This practice is already widely adopted by building societies and mutual lenders.

• Whilst we appreciate the reasons for amending the guidance into rules, we maintain that rules alone will not be sufficient to ensure high standards of compliance. The proposed rules must be supported by robust supervision and where failings are identified, appropriate enforcement must be swift to minimise further detriment to customers.

• In the context proposed, and on the basis of the draft wording provided in the CP, we do not oppose the inclusion of Government schemes as a forbearance option.

• We support the FSA’s objective with regards to the charging of an ERC on arrears charges and accrued interest, we recognise the concerns that customers in this situation are being charged twice. However, we have concerns with the practical implementation of the proposals and believe that further work is required to ensure that firms have a suitable implementation timeframe and the proposals are clear to allow firms to treat all customers fairly.

• We do not agree with the proposals to require every firm to record telephone calls. The impacts of the proposals are disproportionate to smaller firms and place further burdens on larger lenders, for little additional customer benefit. In addition, there are practical difficulties, resulting in the proposals being problematic to implement.

• The BSA recommends that the FSA gives further consideration to the impact on smaller firms, before pressing ahead with the proposals. We believe there is sufficient evidence, backed by adequate controls, to exempt smaller societies from being required to record telephone calls.

• The BSA recommends that further consideration is given to the impact on larger firms and considers the issues identified, before pressing ahead with the proposals. We believe that further work is required to determine the full extent of call recording which is required, to ensure the proposals are practical and proportionate, as well as deliver benefit to customers.

• We support the overall proposal to maintain records for longer. However, we do not believe the proposal to require arrears calls, paper, and electronic records to be held for three years from the date the payment or sale shortfall has been cleared is proportionate. We believe that holding records for three years from the date the record was made results in sufficient consumer protection.