Charges

Part

MCOB Mortgages: Conduct of Business

Chapter

Charges

Printed on: 26/11/2024

Rulebook at: 05/12/2005

MCOB 12

Charges

MCOB 12.1

Application

01/12/2004

Who?

MCOB 12.1.1

This chapter applies to a firm in a category listed in column (1) of the table in MCOB 12.1.2 R in accordance with column (2) of that table.

31/10/2004

MCOB 12.1.2

This table belongs to MCOB 12.1.1 R

(1) Category of firm

(2) Applicable section

mortgage lender

whole chapter

mortgage adviser
mortgage arranger

MCOB 12.1,
MCOB 12.2 and
MCOB 12.5.2 R

mortgage administrator
a firm that was a mortgage lender or mortgage administrator before the sale of a repossessed property

MCOB 12.1, MCOB 12.2, MCOB 12.4 and MCOB 12.5.2 R

31/10/2004

What?

MCOB 12.1.3

This chapter applies where a firm:

(1) enters into, or makes a further advance on, a regulated mortgage contract; or
(2) administers a regulated mortgage contract; or
(3) arranges or advises on a regulated mortgage contract or a variation to the terms of a regulated mortgage contract.

31/10/2004

MCOB 12.1.4

The requirements in MCOB 12.4 (Arrears charges) and MCOB 12.5 (Excessive charges) will continue to apply to a firm after a regulated mortgage contract has come to an end following the sale of a repossessed property. References in this chapter to 'customer' will include references to a former customer as appropriate.

31/10/2004

MCOB 12.1.5

The FSA will expect a firm to ensure that charges made to a customer arising from the sale of a repossessed property and charges arising in relation to a mortgage shortfall debt are not excessive and are subject to the same considerations as apply with respect to arrears charges under this chapter.

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MCOB 12.2

Purpose

01/12/2004

MCOB 12.2.1

(1) Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly. A firm is also under an obligation, as a consequence of MCOB 5 (Pre-application disclosure), MCOB 6 (Disclosure at the offer stage), MCOB 7 (Disclosure at start of contract and after sale) and MCOB 9 (Lifetime mortgages: product disclosure), to make charges transparent to customers. This chapter reinforces these requirements by preventing a firm from imposing unfair and excessive charges.
(2) The level of charges under a regulated mortgage contract is not typically a matter for regulation. However, in certain limited circumstances, the FSA believes that customers should be protected from unfair and excessive charging practices. This chapter considers four specific circumstances, where:

(a) the charges imposed upon a customer seeking to terminate a regulated mortgage contract before the end of the term of the contract do not reflect the cost of termination to the firm;
(b) the charges imposed on a customer in payment difficulties are not based upon the costs incurred by the firm;
(c) the charges (including rates of interest) imposed on a customer under a regulated mortgage contract are excessive and contrary to the customer's interests; and
(d) the charges made to a customer in connection with a firm entering into or making a further advance on a regulated mortgage contract or administering a regulated mortgage contract, or arranging or advising on a regulated mortgage contract or a variation to the terms of a regulated mortgage contract are excessive.

31/10/2004

MCOB 12.3

Early repayment charges

01/12/2004

Early repayment charges to be expressed as cash and to be reasonable

MCOB 12.3.1

A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, an early repayment charge other than one that is:

(1) able to be expressed as a cash value; and
(2) a reasonable pre-estimate of the costs as a result of the customer repaying the amount due under the regulated mortgage contract before the contract has terminated.

31/10/2004

MCOB 12.3.2

A firm can choose the method it employs for calculating early repayment charges in accordance with MCOB 12.3.1 R. A firm should not use the 'Rule of 78' (as contained in Schedule 2 of the Consumer Credit (Rebate on Early Settlement) Regulations 1983), which is not appropriate as it effectively overstates the cost to the mortgage lender.

31/10/2004

MCOB 12.3.3

A firm may calculate the same level of early repayment charge for all regulated mortgage contracts of a similar type (for example a tranche of regulated mortgage contracts offering a particular fixed rate of interest), rather than on the basis of the individual regulated mortgage contract with the particular customer.

31/10/2004

Early repayment charges to be disclosed in illustrations

MCOB 12.3.4

Before:

(1) entering into a regulated mortgage contract with a customer; or
(2) making a further advance on an existing regulated mortgage contract; or
(3) changing all or part of a regulated mortgage contract from one interest rate to another; a firm must disclose to the customer:

(a) in the illustration provided in accordance with MCOB 5, MCOB 7.6.7 R, MCOB 7.6.18 R, MCOB 7.6.22 R, MCOB 7.6.31 R, or MCOB 9; and
(b) in the illustration provided as part of the offer document in accordance with MCOB 6.4.1 R(1) and MCOB 9.5;

the maximum amount payable as an early repayment charge in respect of that regulated mortgage contract, if an early repayment charge applies.

31/10/2004

MCOB 12.4

Arrears charges

01/12/2004

MCOB 12.4.1

(1) A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, a charge for arrears on a customer except where that charge is a reasonable estimate of the cost of the additional administration required as a result of the customer being in arrears.
(2) Paragraph (1) does not prevent a firm from entering into a regulated mortgage contract with a customer under which the firm may change the rate of interest charged to the customer from a fixed or discounted rate of interest to the firm's standard variable rate if the customer goes into arrears, providing that this standard variable rate is not a rate created especially for customers in arrears.

31/10/2004

MCOB 12.4.2

A firm may calculate the same level of arrears charges for all regulated mortgage contracts where the customer is in arrears, rather than on the basis of the individual regulated mortgage contract with the particular customer.

31/10/2004

MCOB 12.4.3

Firms are also subject to requirements on information provision and standards relating to arrears and repossessions (see MCOB 13 (Arrears and repossessions)).

31/10/2004

MCOB 12.5

Excessive charges

01/12/2004

MCOB 12.5.1

A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, excessive charges upon a customer.

31/10/2004

MCOB 12.5.2

A firm must ensure that its charges to a customer in connection with the firm entering into or making a further advance on a regulated mortgage contract or administering a regulated mortgage contract or arranging or advising on a regulated mortgage contract or a variation to the terms of a regulated mortgage contract are not excessive.

31/10/2004

MCOB 12.5.3

When determining whether a charge is excessive, a firm should consider:

(1) the amount of its charges for the services or products in question compared with charges for similar products or services on the market;
(2) the degree to which the charges are an abuse of the trust that the customer has placed in the firm; and
(3) the nature and extent of the disclosure of the charges to the customer.

31/10/2004

MCOB 12.5.4

Firms are also subject to requirements relating to responsible lending (see MCOB 11).

31/10/2004

MCOB 12.6

Business loans

01/12/2004

MCOB 12.6.1

Firms are reminded that, in relation to a regulated mortgage contract for a business purpose in circumstances where MCOB 7.7.1 R applies, if there is a new early repayment charge or a change to the existing early repayment charge, MCOB 7.7.1 R(2) requires a firm to notify the customer within five business days of the maximum amount payable as an early repayment charge.

31/10/2004

MCOB 12.6.2

Firms are also reminded that in accordance with MCOB 1.2.3 R, they should either comply in full with MCOB or comply with all tailored provisions in MCOB that relate to business loans.

31/10/2004