FSA sets out arrears guidelines

The Financial Services Authority (FSA) has unveiled a package of measures that will help to ensure that mortgage holders in arrears are treated fairly.

The proposals strengthen existing rules on arrears handling, one of the urgent issues flagged in the Mortgage Market Review discussion paper last October.

This reflects other ongoing work carried out by the FSA, which uncovered high levels of consumer detriment particularly in the specialist lending sector.

The key arrears proposals include stopping firms adding ERCs to arrears charges, outlawing the application of a monthly arrears charge where firm and customer have come to a repayment arrangement and emphasising that repossessions must be a last resort.

The FSA is also obliging firms to record all arrears handling telephone calls and to keep all records for three years. New proposals will also mean all mortgage advisers and those who arrange non-advised sales will be individually accountable to the FSA, and need to demonstrate they are fit and proper for their role.

Extending the approved person regime will also have significant benefits for consumers. The FSA made it clear through its review of the mortgage market that it wanted a strong, viable and clean marketplace and its requirement for mortgage advisers to prove they are fit and proper will help to remove dishonest individuals from the industry and to keep them out.

Lesley Titcomb, FSA director responsible for the mortgage sector, said: "These proposals underline the standards that firms must meet and will help to ensure that homeowners in financial difficulties are treated fairly. Lenders need to be in no doubt of their obligations to customers who fall behind with payments and must realise that such circumstances are not an opportunity to create further profits."