This meant customers in arrears paid higher monthly mortgage repayments then necessary to settle debt, were misinformed over arrears calculations and had poor credit files for longer. In many cases, no payment affordability calculations were made and some lenders continued charging arrears management fees beyond the payment of the debt.
The FCA also confirmed that customers shortfall balances and previous payment histories were presented unclearly or incorrectly on court applications for possession orders. The regulator said customers may have missed payments on other financial commitments unnecessarily due to the higher Calculated Mortgage Interest (CMIs) sums charged.
The remediation framework covers the process of automatic capitalisation carried out by many lenders, which instantly included payment shortfalls in mortgage repayment calculations following an automatic trigger like an interest rate rise.
750,000 borrowers
Over 750,000 customers have been affected since 2010, which will have risen since the Bank Base Rate rise in August 2016.
The FCA declined to confirm the lender numbers involved or how widespread the arrears miscalculation practices were.
However, the regulator confirmed the costs may amount to up to an estimated £2,000 per customer or roughly £1.5bn in total.
Now, lenders are obliged to communicate with all customers affected and reimburse individual borrower costs taking steps to put past errors right by a 30 June 2018 deadline.
The guidelines follow the industry consultation, GC16/6 – The fair treatment of mortgage customers in payment shortfall: impact of automatic capitalisations, which closed on 18 January 2017 after 39 responses from consumers and industry to update non-handbook guidance consultation GC16/6.
The guidance covers all regulated mortgage plans with an arrears issue covered by MCOB 13, including interest-only mortgages and could also cover unregulated mortgages such as buy to let.
For more, see the summary of feedback document, FG17/3
