201504 CM April

CONSUMER CREDIT
HOUSE RULES
Rosanna Bryant considers the treatment of mortgage customers who fall into
arrears in the light of recent FCA findings.
MORTGAGE businesses are
undergoing significant regulatory
change. Spring 2014 saw the
introduction by the Financial
Conduct Authority (FCA) of new rules
deriving from the Mortgage Market Review
and providers are now preparing for the
implementation of the Mortgage Credit
Directive.
We have also seen two recent
enforcement cases relevant to mortgages.
RBS and NatWest were sanctioned in
August 2014 – for failings in respect of
the suitability of advice given to mortgage
customers and, in a separate case, last
October, Yorkshire Building Society (YBS)
was found not to have treated customers
fairly who were in arrears. The FCA
selects cases for enforcement, in part, to
communicate to the industry and public
its priorities and expectations of firms’
conduct.
So what is the FCA’s approach to the
issues of suitability of advice and arrears
management and what are the themes
arising from these cases?
Fair treatment
At the heart of the FCA’s findings in respect
of arrears management and suitability of
advice is treating customers fairly (TCF).
As an FCA paper, Journey to the FCA,
explains, TCF and the six TCF consumer
outcomes are core to how the FCA expects
firms to treat their customers. There is a
specific outcome for suitability of advice
namely, ‘where consumers receive advice,
the advice is suitable and takes account
of their circumstances.’ In the RBS and
NatWest final notice it was ‘of critical
importance that firms providing mortgages
do so in a way that ensures customers
are treated fairly and in a manner which is
compliant with all regulatory requirements.’
Customers rely on professional advice and,
therefore, any mortgage recommendation
must be suitable to their personal
circumstances.
The application of TCF and the six TCF
outcomes to arrears management is less
clear, but a central concept for firms is to
act in their customers’ best interests. The
fair treatment of customers is regarded
by the FCA as particularly important.
A customer’s best interests require a
lender to be pro-active. In the FCA’s view,
to do otherwise and let arrears, charges
and interest be built up is not to treat a
customer fairly. Moreover, if there is an
inadequate quality assurance regime, one
of the consequences is that management
information can be insufficient to determine
if the system is producing unfair outcomes.
Mortgage customers are frequently
seen as being ‘vulnerable’ in consequence
of their financial difficulties. Their arrears
may be linked to unemployment, divorce
or illness. The FCA defines a vulnerable
customer widely as ‘someone who, due to
their personal circumstances, is especially
susceptible to detriment.’ A proactive
approach by well-trained staff with ‘high
quality conversations’ in the context of a
properly resourced service is essential. If
arrears management is outsourced it is
especially important to see that a contractor
treats potentially vulnerable customers
properly. The issue of vulnerable customers
is in regulatory focus at present with the
FCA’s recent publication of an occasional
paper on the topic.
Arrears management
An FCA Thematic Review (TR14/3) in
February 2014 acknowledged that arrears
management had improved in firms since
2009. Mortgage lenders though were urged
to focus on delivering consistently fair
outcomes for customers based on their
individual circumstances. Lenders were
called upon to better support and empower
customer-facing staff and to be more
flexible in their fair treatment of individual
customers based on their circumstances.
The Mortgages and Home Finance:
Conduct of Business sourcebook (MCOB)
13.3 requires firms to make reasonable
efforts to reach agreement with customers
over the method of repaying any shortfall
and to allow a reasonable time to do so.
In particular, they should establish, where
feasible, a payment plan that is practical in
terms of the customer’s circumstances. In
applying this rule, the FCA expects lenders
to inquire into the individual circumstances
of each customer to identify the cause
of their payment difficulties. It is also
necessary to assess a customer’s income
and expenditure sufficiently, including their
financial prospects, such as employment
opportunities.
What is not acceptable is for firms to
agree ad hoc payments without adequately
considering the impact on a customer’s
debt and the totality of payment options
available. Nor should they let time pass with
increasing arrears, interest and charges.
Moreover, while repossession cannot
be sought unless all other reasonable
34 April 2015 www.cicm.com
The recognised standard in credit management