FCA consults on redress for borrowers in mortgage arrears

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The FCA is working on a system of redress after it found lenders and mortgage firms have automatically included customers’ arrears balances as part of their mortgage payments.

The regulator is consulting on guidance on how to treat borrowers who may have been affected when lenders and administrators automatically include arrears balances when they recalculate mortgage payments.

The FSA introduced a rule in 2010 which prevented firms from automatically capitalising a payment shortfall where the impact on the customer would be material.

The FCA has found some lenders and administrators are collecting shortfalls through mortgage payments while also continuing to pursue the arrears through their collections processes, treating them as immediately payable.

Working with an industry group representing 66 per cent of the market, the FCA has found the issue affects an estimated 750,000 customers.

The regulator says this number may have increased following the Bank of England’s base rate cut in August, which could have led to recalculation of mortgage payments for some customers.

It is expected the amount of redress will run into the low hundreds of pounds per person.

FCA director of supervision Jonathan Davidson says: “Inadvertent, automatic capitalisation of arrears can lead to poor customer outcomes and firms need to put this right, and make sure the practice stops.

He says firms should start identifying affected customers immediately and not wait for the final guidance.