FCA consults on mortgage arrears calculation guidance

FCA is consulting on remedies for customers who have gone into arrears on their mortgages, and have been disadvantaged because of the way lenders have calculated their balances. Some firms have automatically included customers’ arrears balances within their monthly mortgage payments, which FCA considers to be “automatic capitalisation”. While capitalisation can be permissible in certain circumstances and with customer consent, the then FSA introduced a rule in 2010 that firms could not apply automatic capitalisation where the effect on customers could be material. It follows that this current practice is a likely breach of FCA’s rules, because firms do not extinguish the arrears and as a result collect them over the remaining term of the mortgage through higher payments while they continue to chase for repayment. The draft guidance includes a remediation flowchart for firms to use. FCA asks for comments by 18 January 2017.