Arrears and repossessions

Part

MCOB Mortgages: Conduct of Business

Chapter

Arrears and repossessions

Printed on: 07/11/2024

Rulebook at: 14/01/2005

MCOB 13

Arrears and repossessions

MCOB 13.1

Application

01/12/2004

Who?

MCOB 13.1.1

This chapter applies to a firm in a category listed in column (1) of the table in MCOB 13.1.2 R in accordance with column (2) of that table.

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MCOB 13.1.2

Table: This table belongs to MCOB 13.1.1 R

(1) Category of firm

(2) Applicable section

mortgage lender, and a firm that was a mortgage lender before the sale of a repossessed property

MCOB 13.1 - MCOB 13.3, except for MCOB 13.3.9 R and MCOB 13.3.10 G

mortgage administrator, and a firm that was a mortgage administrator before the sale of a repossessed property

whole chapter

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What?

MCOB 13.1.3

This chapter applies with respect to administering a regulated mortgage contract and administering a mortgage shortfall debt.

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MCOB 13.1.4

The requirements in MCOB 13 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.

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MCOB 13.1.5

The FSA expects a firm to treat a mortgage shortfall debt in the same way that it treats a payment shortfall.

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MCOB 13.1.6

A firm may have entered into a mix of regulated mortgage contracts and non-regulated mortgage contracts with a customer secured on the same property. In such circumstances, if the regulated mortgage contract is in arrears, notwithstanding that the overall position in respect of the mortgages generally is not in arrears, the firm will need to comply with all the requirements of MCOB 13 in respect to the regulated mortgage contract. Where this involves providing the customer with information, a firm should explain, if it is the case, that whilst the overall position on the mortgages is not in arrears, no action will be taken in respect of the regulated mortgage contract.

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MCOB 13.1.7

If a firm has entered into more than one regulated mortgage contract with the same customer secured on the same property, the firm may treat all of the regulated mortgage contracts as one for the purposes of MCOB 13.

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MCOB 13.2

Purpose

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MCOB 13.2.1

Principle 6 requires a firm to pay due regard to the interests of customers and treat them fairly. This chapter amplifies this principle in respect of the information and service provided to customers who have payment difficulties or face a mortgage shortfall debt.

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MCOB 13.2.2

There may be occasions where a customer enters into a regulated mortgage contract with no intention of meeting his payment obligations. Where the intention is to defraud, this chapter does not prevent early action to recover the debt.

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MCOB 13.3

Dealing fairly with customers in arrears: policy and procedures

01/12/2004

MCOB 13.3.1

(1) A firm must deal fairly with any customer who:

(a) is in arrears on a regulated mortgage contract; or
(b) has a mortgage shortfall debt.

(2) A firm must put in place, and operate in accordance with, a written policy (agreed by its respective governing body) and procedures for complying with (1).

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MCOB 13.3.2

(1) A firm should ensure that its written policy and procedures include:

(a) using reasonable efforts to reach an agreement with a customer over the method of repaying any payment shortfall or mortgage shortfall debt, in the case of the former having regard to the desirability of agreeing with the customer an alternative to taking possession of the property;
(b) liaising, if the customer makes arrangements for this, with a third party source of advice regarding the payment shortfall or mortgage shortfall debt;
(c) adopting a reasonable approach to the time over which the payment shortfall or mortgage shortfall debt should be repaid, having particular regard to the need to establish, where feasible, a payment plan which is practical in terms of the circumstances of the customer;
(d) granting, unless it has good reason not to do so, a customer's request for a change to:

(i) the date on which the payment is due (providing it is within the same payment period); or
(ii) the method by which payment is made;

and giving the customer a written explanation of its reasons if it refuses the request;
(e) giving consideration, where no reasonable payment arrangement can be made, to the customer being allowed to remain in possession to effect a sale; and
(f) repossessing the property only where all other reasonable attempts to resolve the position have failed.

(2) Contravention of MCOB 13.3.2 E(1) may be relied on as tending to show contravention of MCOB 13.3.1 R(2).

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MCOB 13.3.3

The requirement in MCOB 13.3.1 R(2) for a written policy and procedures is intended to ensure that a firm has addressed the need for internal systems to deal fairly with any customer in financial difficulties. MCOB 13.3.1 R(2) does not oblige a firm to provide customers with a copy of the written policy and procedures. Nor, however, does it prevent a firm from providing customers with either these documents or a more customer-orientated version.

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MCOB 13.3.4

In relation to MCOB 13.3.2 E(1)(a), customers:

(1) should be given a reasonable period of time to consider any proposals for payment that are put to them; in addition, and depending on the individual circumstances, a firm may wish to do one or more of the following with the agreement of the customer:

(a) extend the term of the regulated mortgage contract; or
(b) change the type of the regulated mortgage contract; or
(c) defer payment of interest due on the regulated mortgage contract or mortgage shortfall debt; or
(d) treat the payment shortfall as if it was part of the original amount borrowed;

(2) should be given adequate information to understand the implications of any proposed arrangement; one approach may be to provide information on the new terms in line with the requirements for annual statements (see MCOB 7.5.3 R).

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MCOB 13.3.5

MCOB 13.3.2 E(1)(a) means that a firm should not automatically capitalise arrears.

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MCOB 13.3.6

In relation to MCOB 13.3.2 E(1)(c), the FSA takes the view that the determination of a reasonable repayment period will depend upon the individual circumstances. In appropriate cases this will mean that repayments are arranged over the remaining term of the regulated mortgage contract.

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MCOB 13.3.7

In relation to MCOB 13.3.2 E(1)(d) a term in a regulated mortgage contract that purported to allow a firm to change the payment date unilaterally might in any event contravene the Unfair Terms Regulations.

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MCOB 13.3.8

Firms that propose to outsource aspects of customer relationships (including debt collection) should note that, as set out in SYSC 3.2.4 G(1) the FSA will continue to hold them responsible for the way in which this work is carried on.

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Record keeping: arrears and repossessions

MCOB 13.3.9

(1) A firm must make and retain an adequate record of its dealings with a customer whose account is in arrears or who has a mortgage shortfall debt, which will enable the firm to show its compliance with MCOB 13.4 (Arrears: provision of information to the customer), MCOB 13.5 (Dealing with a customer in arrears or with a mortgage shortfall debt) and MCOB 13.6 (Repossessions).
(2) A firm must retain the record required by (1) for a year from the date on which the relevant payment shortfall or mortgage shortfall debt was cleared.

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MCOB 13.3.10

The record referred to in MCOB 13.3.9 R should contain, or provide reference to, matters such as:

(1) the date of first communication with the customer after the account was identified as being in arrears;
(2) in relation to correspondence issued to a customer in arrears, the name and contact number of the employee dealing with that correspondence, where known;
(3) the basis for issuing tailored information in accordance with MCOB 13.7.1 R;
(4) information relating to any new payment arrangements proposed;
(5) the date of issue of any legal documents;
(6) the arrangements made for sale after the repossession (whether legal or voluntary); and
(7) the date of any communication summarising the customer's outstanding debt after sale of the repossessed property.

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MCOB 13.3.11

For details of the standard expected of firms in relation to maintaining records, see MCOB 2.8 (Record keeping)

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MCOB 13.4

Arrears: provision of information to the customer

01/12/2004

MCOB 13.4.1

If a customer falls into arrears on a regulated mortgage contract, a firm must as soon as possible, and in any event within 15 business days of becoming aware of that fact, provide the customer with the following in a durable medium:

(1) the current FSA information sheet on mortgage arrears;
(2) a list of the due payments either missed or only paid in part;
(3) the total sum of the payment shortfall;
(4) the charges incurred as a result of the payment shortfall;
(5) the total outstanding debt, excluding charges that may be added on redemption; and
(6) an indication of the nature (and where possible the level) of charges the customer is likely to incur unless the payment shortfall is cleared.

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MCOB 13.4.2

(1) The current FSA information sheet on mortgage arrears is available on the FSA website, www.fsa.gov.uk; copies can also be obtained from the FSA.
(2) In the event of the FSA making any changes to the information sheet, at least three months' notice of the changes will be given on the FSA website.

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MCOB 13.4.3

(1) A firm may provide the information in MCOB 13.4.1 R (2), (3), (4), (5) and (6) orally, for example, by telephone, but must provide the information in a durable medium with a copy of the FSA information sheet on mortgage arrears within 15 business days of becoming aware of the customer's account falling into arrears.
(2) Where a firm provides the information in MCOB 13.4.1 R when a payment shortfall occurs but before the customer's account falls into arrears, it need not repeat the provision of the information in MCOB 13.4.1 R when the customer's account falls into arrears.

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Customers in arrears within the past 12 months

MCOB 13.4.4

If a customer's account has previously fallen into arrears within the past 12 months (and at that time the customer received the disclosure required by MCOB 13.4.1 R), the arrears have been cleared and the customer's account falls into arrears on a subsequent occasion a firm must either:

(1) issue a further disclosure in compliance with MCOB 13.4.1 R; or
(2) provide a statement, in a durable medium, of the payments due, the actual payment shortfall, any charges incurred and the total outstanding debt excluding any charges that may be added on redemption, together with information as to the consequences, including repossession, if the payment shortfall is not cleared.

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Steps required before action for repossession

MCOB 13.4.5

Before commencing action for repossession, a firm must:

(1) provide a written update of the information required by MCOB 13.4.1 R(2), (3), (4), (5) and (6);
(2) ensure that the customer is informed of the need to contact the local authority to establish whether the customer is eligible for local authority housing after his property is repossessed; and
(3) clearly state the action that will be taken with regard to repossession.

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MCOB 13.5

Dealing with a customer in arrears or with a mortgage shortfall debt

01/12/2004

Statements of charges

MCOB 13.5.1

Where an account is in arrears, and the payment shortfall or mortgage shortfall debt is attracting charges, a firm must provide the customer with a regular written statement (at least once a quarter) of the payments due, the actual payment shortfall, the charges incurred and the debt.

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MCOB 13.5.2

(1) For the purpose of MCOB 13.5.1 R, charges that trigger the requirement for regular statements include all charges and fees levied directly as a result of the account falling into arrears. This includes charges such as monthly administrative charges, legal fees and interest. If interest is applied to the amount of the arrears, as it is applied to the rest of the mortgage, a firm need not send a written statement, unless other charges are also being made. If interest is applied to the amount of the arrears in a different manner to the rest of the mortgage then a written statement will be required.
(2) In determining the frequency for providing statements in accordance with MCOB 13.5.1 R, a firm should have regard to the application of new charges and the number of transactions on the customer's account.
(3) If an account in arrears is subject to a payment plan agreed between a firm and a customer, and the account is operating in accordance with that plan, the firm will still need to send the customer a written statement in accordance with MCOB 13.5.1 R if the payment shortfall or mortgage shortfall debt is attracting charges.
(4) Information provided should cover the period since the last statement. Firms may use the annual statement to comply with MCOB 13.5.1 R, in which case the annual statement will need to be supplemented to include the actual payment shortfall.

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Pressure on customers

MCOB 13.5.3

A firm must not put pressure on a customer through excessive telephone calls or correspondence, or by contact at an unreasonable hour.

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MCOB 13.5.4

In MCOB 13.5.3 R, a reasonable hour will usually fall between 8 am and 9 pm. Firms should also have regard to the circumstances of the customer and any knowledge they have of the customer's work pattern or religious faith which might make it unreasonable to contact the customer during these hours.

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MCOB 13.5.5

In MCOB 13.5.3 R, putting pressure on a customer includes:

(1) the use of documents which resemble a court summons or other official document, or are intended to lead the customer to believe that they come from or have the authority of a court (which might in any event constitute a criminal offence under the County Courts Act 1984 or section 40 of The Administration of Justice Act 1970); and
(2) the use of documents containing unfair, unclear or misleading information intended to coerce the customer into paying. A firm should also have regard to Section 1 of the Malicious Communications Act 1988 which establishes a criminal offence in respect of letters sent which convey a threat or false information with intent to cause distress or anxiety.

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MCOB 13.5.6

In relation to MCOB 13.5.3 R, a firm should also have regard to the general law, including the Data Protection Act 1998, on the disclosure of information to third parties.

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MCOB 13.6

Repossessions

01/12/2004

MCOB 13.6.1

A firm must ensure that, whenever a property is repossessed (whether voluntarily or through legal action) and it administers the regulated mortgage contract in respect of that property, steps are taken to:

(1) market the property for sale as soon as possible; and
(2) obtain the best price that might reasonably be paid, taking account of factors such as market conditions as well as the continuing increase in the amount owed by the customer under the regulated mortgage contract.

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MCOB 13.6.2

In MCOB 13.6.1 R it is recognised that a balance has to be struck between the need to sell the property as soon as possible, to reduce or remove the outstanding debt, and other factors which may prompt the delay of the sale. These might include market conditions (explicitly referred to in MCOB 13.6.1 R(2)) but there may be other legitimate reasons for deferring action. This could include the expiry of a period when a grant is repayable on re-sale, or the discovery of a title defect that needs to be remedied if the optimal selling price is to be achieved.

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If the proceeds of sale are less than the debt

MCOB 13.6.3

A firm must ensure that, as soon as possible after the sale of a repossessed property, if the proceeds of sale are less than the amount of the customer's debt, the customer is informed in a durable medium of:

(1) the mortgage shortfall debt; and
(2) where relevant, the fact that the mortgage shortfall debt may be pursued by another company (for example, a mortgage indemnity insurer).

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MCOB 13.6.4

(1) If the decision is made to recover the mortgage shortfall debt, the firm must ensure that the customer is notified of this intention.
(2) The notification referred to in (1) must take place within five years of the date of the sale (if the regulated mortgage contract is subject to Scottish law) or within six years (in all other cases).

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MCOB 13.6.5

MCOB 13.6.4 R does not require a firm to recover a mortgage shortfall debt. A firm may not wish to recover the mortgage shortfall debt in some situations, for example where the sums involved make action for recovery unviable.

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If the proceeds of sale are more than the debt

MCOB 13.6.6

A firm must ensure that, on the sale of a repossessed property, if the proceeds of sale are more than the amount of the customer's debt, reasonable steps are taken, as soon as possible after the sale, to inform the customer in a durable medium of the surplus and, subject to the rights of any subsequent mortgage or charge holders, to pay it to him.

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MCOB 13.7

Business loans

01/12/2004

MCOB 13.7.1

Where the regulated mortgage contract is for a business purpose, a firm may as an alternative to MCOB 13.4.1 R(1) provide the following information in a durable medium instead of the FSA information sheet on mortgage arrears:

(1) details of the consequences if the payment shortfall is not cleared;
(2) a description of the options available to the customer for clearing the payment shortfall; and
(3) details of sources of fee-free advice for business customers.

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MCOB 13.7.2

Firms are reminded that in accordance with MCOB 1.2.3R, they should either comply in full with MCOB or comply with all tailored provisions in MCOB that relate to business loans. Therefore, a firm may only follow the tailored provisions in MCOB 13.7, if it also follows all other tailored provisions in MCOB.

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