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MCOB 13.3 Dealing fairly with customers in arrears: policy and procedures

MCOB 13.3.1RRP
  1. (1)

    A firm must deal fairly with any customer who:

    1. (a)

      is in arrears on a regulated mortgage contract or home purchase plan;1

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    2. (b)

      has a sale shortfall; or1

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    3. (c)

      is otherwise in breach of a home purchase plan.

  2. (2)

    A firm must put in place, and operate in accordance with, a written policy (agreed by its respective governing body) and procedures for complying with (1).

Policy and procedures: content

MCOB 13.3.2E
  1. (1)

    A firm should ensure that its written policy and procedures include:

    1. (a)

      using reasonable efforts to reach an agreement with a customer over the method of repaying any payment shortfall or sale shortfall1, in the case of the former having regard to the desirability of agreeing with the customer an alternative to taking possession of the property;

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    2. (b)

      liaising, if the customer makes arrangements for this, with a third party source of advice regarding the payment shortfall or sale shortfall1;

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    3. (c)

      adopting a reasonable approach to the time over which the payment shortfall or sale shortfall1 should be repaid, having particular regard to the need to establish, where feasible, a payment plan which is practical in terms of the circumstances of the customer;

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    4. (d)

      granting, unless it has good reason not to do so, a customer's request for a change to:

      1. (i)

        the date on which the payment is due (providing it is within the same payment period); or

      2. (ii)

        the method by which payment is made;

      and giving the customer a written explanation of its reasons if it refuses the request;

    5. (e)

      giving consideration, where no reasonable payment arrangement can be made, to the customer being allowed to remain in possession to effect a sale; and

    6. (f)

      repossessing the property only where all other reasonable attempts to resolve the position have failed.

  2. (2)

    Contravention of 1(1) may be relied on as tending to show contravention of MCOB 13.3.1 R(2).

MCOB 13.3.3GRP

The requirement in MCOB 13.3.1 R(2) for a written policy and procedures is intended to ensure that a firm has addressed the need for internal systems to deal fairly with any customer in financial difficulties. MCOB 13.3.1 R(2) does not oblige a firm to provide customers with a copy of the written policy and procedures. Nor, however, does it prevent a firm from providing customers with either these documents or a more customer-orientated version.

MCOB 13.3.4G

In relation to using reasonable efforts to reach an agreement with a customer over the method of repaying any payment shortfall or sale shortfall1, customers:

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  1. (1)

    should be given a reasonable period of time to consider any proposals for payment that are put to them; in addition, and depending on the individual circumstances, a firm may wish to do one or more of the following in relation to the regulated mortgage contract or home purchase plan1 with the agreement of the customer:

    1. (a)

      extend its term1; or

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    2. (b)

      change its type1; or

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    3. (c)

      defer payment of interest due on the regulated mortgage contract or of sums due under the home purchase plan (including, in either case, on any sale shortfall)1; or

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    4. (d)

      treat the payment shortfall as if it was part of the original amount provided1;

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  2. (2)

    should be given adequate information to understand the implications of any proposed arrangement; one approach may be to provide information on the new terms in line with the annual statement provisions1.

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MCOB 13.3.5G

In relation to using reasonable efforts to reach an agreement with a customer over the method of repaying any payment shortfall or sale shortfall, a mortgage lender1 should not automatically capitalise arrears.

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MCOB 13.3.6GRP

In relation to adopting a reasonable approach to the time over which the payment shortfall or sale shortfall should be repaid,1the FSA takes the view that the determination of a reasonable repayment period will depend upon the individual circumstances. In appropriate cases this will mean that repayments are arranged over the remaining term.

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MCOB 13.3.7GRP

In relation to granting a customer's request for a change to the payment date, a term that purported to allow a firm to change the payment date unilaterally might in any event contravene the Unfair Terms Regulations.

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MCOB 13.3.8GRP

Firms that propose to outsource aspects of customer relationships (including collection of debts or any other sums due1) should note that and SYSC 8,2 a firm cannot contract out its regulatory obligations and1 the FSA will continue to hold them responsible for the way in which this work is carried on.

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Record keeping: arrears and repossessions

MCOB 13.3.9RRP
  1. (1)

    A mortgage lender or administrator 1must make and retain an adequate record of its dealings with a customer whose account is in arrears or who has a sale shortfall1, which will enable the firm to show its compliance with this chapter1.

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  2. (2)

    A mortgage lender or administrator 1must retain the record required by (1) for a yearfrom the date on which the relevant payment shortfall or sale shortfall 1was cleared.

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MCOB 13.3.10GRP

The record referred to in MCOB 13.3.9 R should contain, or provide reference to, matters such as:

  1. (1)

    the date of first communication with the customer after the account was identified as being in arrears;

  2. (2)

    in relation to correspondence issued to a customer in arrears, the name and contact number of the employee dealing with that correspondence, where known;

  3. (3)

    the basis for issuing tailored information in accordance with MCOB 13.7.1 R;

  4. (4)

    information relating to any new payment arrangements proposed;

  5. (5)

    the date of issue of any legal documents;

  6. (6)

    the arrangements made for sale after the repossession (whether legal or voluntary); and

  7. (7)

    the date of any communication summarising the customer's outstanding debt after sale of the repossessed property.

MCOB 13.3.11GRP

For details of the standard expected of firms in relation to maintaining records, see MCOB 2.8 (Record keeping)