Improving the treatment of those in mortgage arrears

The Financial Services Authority (FSA) has set out a package of measures that it claims will help to ensure that mortgage holders in arrears are treated fairly.

The proposals strengthen existing rules on arrears handling, aiming to:

- Make plain that firms must not add early repayment charges on arrears charges and interest levied on those charges;
- Clarify that firms must not apply a monthly arrears charge where the firm and the customer have agreed an arrangement to repay the arrears;
- Compel firms to consider all options for borrowers. Repossessions should always be the last resort;
- Confirm that payments by customers in financial difficulties must first be allocated to clearing the missed monthly payments, rather than to arrears charges, which can be repaid later; and
- Oblige firms to record all arrears handling telephone calls and to keep all records for three years.

But one consumer champion argues that while the steps are positive, they could go further.

Which? chief executive, Peter Vicary-Smith, said:

“It’s shameful that some lenders have been hitting their struggling customers with excessive arrears charges so we’re pleased that the FSA is at last taking action.”

“However, the FSA must do more to protect consumers who face the threat of losing their home by naming the firms it is currently taking enforcement action against. This will ensure that judges have all the facts available when hearing repossession cases.”