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FCA announce arrears remediation consultation

The Financial Conduct Authority (FCA) yesterday announced that it will consult on new guidance on the treatment of customers that fall into mortgage arrears across the UK, including those mortgage borrowers who may have been affected by the way firms calculate customers’ monthly mortgage payments. 

It has been identified by the FCA that some mortgage lenders and administrators automatically include customers’ arrears balances within their monthly mortgage payments which are occasionally recalculated, such as when interest rates change, despite the fact that the financial regulatory body considers this to be ‘automatic capitalisation’ and a likely breach of its own rules.

Effectively, because firms have not dismissed the arrears, they are collecting the arrears over the remaining mortgage term through a higher monthly payment and, also continuing to pursue the arrears through their collections processes treating them as immediately payable.


The FCA insists that the automatic inclusion of arrears balances in customers’ mortgage payments lacks transparency and can lead to harm for mortgage customers.

The industry body says that it has not been possible to determine the number of customers affected by this issue across the industry. But through its work with an industry working group, which represents around 66% of the market share based on outstanding mortgage balances, the FCA has identified approximately 750,000 affected customers.

Jonathan Davidson, director of supervision – retail and authorisations, said: “Even if inadvertent, automatic capitalisation of arrears can lead to poor customer outcomes and firms need to put this right, and make sure the practice stops. 

“Customers do not have to take any action at this stage, as firms will contact them directly. Firms should start identifying affected customers immediately and not wait until the finalised guidance is published.

“To prevent similar issues to this one occurring in the future firms need to ensure that all systems are reviewed when considering the implications of a rule change.” 

The Council of Mortgage Lenders (CML) has welcomed the FCA’s announcement of a consultation on a potential framework for remediation to address past arrears calculation methodology problems.

Paul Smee, CML director general, said: “Those lenders who used the arrears calculation methodology now identified as problematic did so in good faith, believing that they complied with the rules and were acting in customer interests. They are fully committed to delivering fair outcomes for all customers, past and present.

“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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