The proposals seek to ensure that no part of any customer payment is used to pay off arrears-related interest and charges before the balance of the shortfall has been cleared. This means that a customer has more chance of exiting the payment shortfall quicker.
The changes follow a review conducted by the FCA which said it had found “divergent” practices among lenders in their allocation of payments processes.
If approved, its Mortgage Conduct of Business (MCOB) rules will be amended.
It is also planning to change its glossary definition of ‘payment shortfall’ to make it clear that interest on missed payments, fees and charges do not form part of a payment shortfall.
In the MCOB handbook, a payment shortfall is defined as “the outstanding amount to be paid measured against the amount of payments which have become due during the term of a regulated mortgage contract or home purchase plan, including any arrears amount due.”
However, the FCA said the current rules do not specify whether the contractual monthly instalment should be paid before or after the payment shortfall balance.
The FCA is seeking responses to its proposals by Wednesday 10 August.