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Mortgage customers could get compensation over arrears.

THOUSANDS of mortgage customers could be in line for compensation after lenders automatically lumped their arrears balances in with their monthly mortgage payments.

The Financial Conduct Authority (FCA) said the automatic inclusion of arrears balances in customers' mortgage payments lacks transparency and can lead to harm. It can take a customer longer to pay off their debt and can lead to inappropriate fees being charged.

The watchdog said through its work with an industry group representing around two-thirds of the market, it has identified around 750,000 affected customers.

Effectively, firms doing this are collecting the arrears over the remaining mortgage term through a higher monthly payment - as well as continuing to pursue the arrears through their collections processes treating them as immediately payable, the FCA said.

The Bank of England's recent cut in the base rate to 0.25% means the number of borrowers affected may now be greater as the rate change would have prompted some lenders to recalculate some customers' mortgage payments. A rate change can be a trigger point at which customers' arrears balances are automatically bundled in to their monthly payments.

The FCA expects lenders to have identified those customers affected by June 2017.

Its work indicates the financial impact on the majority of affected customers may have been relatively small with estimated compensation, where appropriate, likely to be in the low hundreds of pounds per person. In some cases, putting the situation right may not involve paying redress to customers.

But in other situations, for example if the customer was hit with high credit costs such as needing to service a payday loan or a credit card debt because of the situation they were put in by their mortgage lender, they may be entitled to compensation.

The FCA is also consulting on new guidance on the treatment of customers with mortgage payment arrears.

It said it considers automatic capitalisation- in situations where mortgage customers' arrears balances have automatically been included within their monthly mortgage payments when they have been recalculated from time to time - to be a likely breach of its rules.

The Council of Mortgage Lenders (CML) said lenders will pro-actively identify and contact affected customers to ensure that any compensation due to them is paid.

Paul Smee, CML director general, said: "Customers do not need to do anything.

"Once lenders have digested the regulator's consultation and determined the most appropriate way to undertake the expected remediation, they will be in touch directly with affected customers."

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Publication:South Wales Echo (Cardiff, Wales)
Date:Oct 20, 2016
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