In a review last year the FCA set out to understand whether customers with long term mortgage arrears were experiencing harm through lenders exercising extended forbearance.
The conclusion was that customers were generally being treated appropriately. Some good practices were identified but the FCA also identified some issues.
Here, we look at the findings and consider steps that lenders may take to review the accounts of their own customers who have long term arrears.
Where a customer is in long term arrears, it is likely that they will have had many touch points with their lender. It is this engagement over a prolonged period of time which appears to be the cause of a number of the issues which the FCA identified. These include -
- Case notes contained insufficient information resulting in customers having to repeat their circumstances on multiple occasions.
- Agreed payment arrangements were not regularly reviewed to ensure they remained suitable. Attention was drawn to FG11/15 (Forbearance and Impairment Provisions – Mortgages) where an example of good practice was highlighted as reviewing the arrangement every 3-6 months.
- Arrangements to pay were repeatedly pursued when alternative options for payment of arrears ought to have been considered.
- Quality assurance processes reviewed individual calls. This did not give the lender sufficient information to assess the "end to end" approach being taken on accounts.
What were the good practices that the FCA identified?
The FCA observed:
- Lenders handling customers with sensitivity and purpose, considering the individual circumstances of the account, which encouraged the customer to remain engaged.
- By introducing specific call handlers or designated sub teams providing the customer with a consistent point of contact, this improved the overall customer experience.
- End to end quality assurance enabled lenders to evaluate better the suitability of customer outcomes whilst also assisting with robust root cause analysis.
Reviewing your long term arrears cases
The FCA expects lenders to review their practices in line with published rules, guidance and examples of good and poor practice. Relevant changes to procedures should be made where appropriate.
Lenders are reminded of FG11/15 which states that the primary aim of forbearance should be to complete recovery of the mortgage through full repayment of the arrears. Where the primary aim cannot be achieved, the secondary aim is to recover the customer into a sustainable terms position – sustainable terms is revising contractual terms so the mortgage can be serviced over its full life.
The FCA reviewed accounts where the mortgage arrears were greater than 12 months. In reviewing your long term arrears accounts, consider the following points –
- For how long has the account been in arrears? An account 12 months in arrears is likely to have been in arrears for longer than this.
- Where an account has been in arrears for more than 2 years, over that time:
- have the arrears increased?
- has the balance increased?
- how many arrangements have there been?
- why have the arrangements not been maintained?
- Is there a vulnerability? If so:
- How is the vulnerability impacting ability to pay?
- How and why is the customer's position going to change?
- Has the matter repeatedly been before the Court? If so, consider the steps that are necessary to ensure that the Court is fully aware of the history to the matter and your concerns about the affordability of the mortgage.
It is worth remembering that in 2011, the FSA (as it then was) commented that "where support or forbearance is provided without careful consideration of the customer's individual circumstances it can place them in an even worse position….this outcome is in the interest of neither the customer or the firm".