Mortgage Market Review: Arrears and Approved Persons

The consultation paper sets out proposals for strengthening the current rules in MCOB. The FSA proposes to:

1. Clarify its existing requirements in respect of the continued application of a monthly arrears charge where a customer has entered into an arrangement to pay the arrears. The consultation paper states, at paragraph 4.2, that these charges “which are typically between £30 and £50 per month, do not reflect the extra costs of administration, as once the direct debit is set up to collect the extra payments, no further work is necessary” (see our article on “Unfair Contract Terms Defences”). The FSA proposes to add an evidential provision to make it clear that firms should not levy an arrears charge where customers have a performing arrangement in place to repay the arrears.

2. The FSA intends to convert MCOB 13 forbearance guidance into rules and in particular, to change MCOB 13.2.2E.

3. The FSA intends to clarify its existing requirements in relation to the practice of charging Early Repayment Charges on arrears charges and the interest levied on arrears charges.

4. The FSA intends to clarify its existing requirement that payments from customers be allocated to clearing missed monthly payments, leaving charges to be paid later.


Many lenders have already instructed their TPAs to remove ERCs calculated on an arrears charges inclusive balance and to end the practice of adding a monthly arrears charge to accounts where the customer is adhering to an Agreement to Pay, in anticipation of these anticipated rule changes from the FSA.