The Financial Conduct Authority (FCA) has given lenders until the end of June next year to consider and compensate customers who may have unfairly had mortgage arrears included in their monthly repayments.
The City watchdog has issued finalised guidance for lenders after a consultation last October found that as many as 750,000 mortgage holders may have been affected by their arrears being added to their monthly mortgage payment.
This practice is known as automatic capitalisation and the FCA says many firms using old calculation systems may still be doing this.
The FCA hasn’t disclosed what prompted it to look at this issue but says it analysed six unnamed firms that are representative of the sector and alongside an industry working group they assessed a sample of mortgage customers.
Lenders will now have to look at cases of current and former customers with payment shortfalls from June 25 2010, and will also have to make any corrections with credit reference agencies.
The regulator speculated in its guidance that the number of affected mortgage holders may now be higher due to the Bank of England cutting interest rates last August.
This would have made some monthly payments lower but customers may have unfairly been charged for arrears at the same time, keeping their payments higher than necessary.
The FCA said: “Our analysis indicates that the financial impact for most customers may have been relatively small with estimated remediation likely to be in the low hundreds of pounds.
“The framework provides firms with an option that they could use to start remediating customers, saving time and cost in coming up with their own approaches.
“If firms were to conduct individual case reviews we estimate the cost would be approximately £2,000 per customer. By making the compensation process as efficient as possible much of this cost should be avoidable.”
This has been going on for so long it’s unreal. Having managed a nationwide Repossession Management department for a major Asset Manager in recent history having taken a sabbatical from the world of estate agency, this problem came to light 3 or so years ago and was highlighted by a particularly sharp borrower in Northern Ireland, resulting in a total stop of all repossessions there for over 12 months for one of, if not the largest lender in this country. All of the major lenders we dealt with advised us at the time that they had reviewed their own mortgage books in light of the judgement and were not affected as they hadn’t been doing it. Clearly they had. And my understanding from speaking to some very high level execs at the lender who was affected at the time (was part of my role to speak to them) they led me to believe that the problem had equated to thousands and thousands of pounds for a not insignificant number of those affected by the practice.
Makes me laugh that us in the property industry seem to get battered at every available opportunity by government and legislators, yet banks etc seem almost immune and get away with murder.
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