FCA review may impact MCOB provisions

June 2016

FCA review may impact MCOB provisions

The Financial Conduct Authority (FCA) has announced that it is proposing a change to the way that mortgage lenders allocate customer payments in circumstances where customers have fallen into arrears.

The proposals, which the FCA says are designed to assist customers to get their accounts out of arrears in a shorter period of time, would mean that customer payments are not used by lenders to pay off arrears-related interest and charges unless and until the balance of the shortfall itself has been paid.

The proposal follows a review in which the FCA stated that it found different methods of allocation being applied by lenders in their processes.

To implement the proposal, if approved, the FCA will amend its Mortgage Conduct of Business (MCOB) rules including a change to its glossary definitions of ‘payment shortfall’, so that the definition does not include interest on missed payments, fees and charges.

If the proposals are adopted, it appears that as well as some lenders needing to review their methods for allocating payments, such a change is likely to prompt a review of lenders’ products’ terms & conditions, in order to synchronise with the MCOB provisions. This would be to ensure the avoidance of potential confusion caused by what may happen in practice and what has been recorded as being agreed in writing as part of the mortgage product. Consistency and accuracy in this area would ensure that customers are treated fairly.

The FCA is seeking responses to its proposals from both lenders and stakeholders by 10 August 2016.