New mortgage arrears code comes into force next month

BANKS WILL no longer be able to impose penalties on customers in mortgage arrears, force them to surrender tracker mortgages or bombard them with letters and calls demanding repayment, under a Central Bank code of conduct which comes into force in January.

Under the revised Code of Conduct on Mortgage Arrears, mortgage holders who are struggling to meet repayments will be offered significant levels of protection once they co-operate with the new Mortgage Arrears Resolution Process which banks will have to establish.

While the code has been welcomed, concern has been expressed that the appeals system will be handled by the banks and will lack independence.

In addition to applying to customers in arrears, the code will also cover borrowers who notify lenders that they are facing financial difficulties and may be at risk of mortgage arrears in the future.

Consumers in difficulty will not face surcharge interest and banks will have to take into account their overall indebtedness when drawing up new repayment terms.

The code was introduced in February 2009 but has been revised following recommendations by the Government’s expert group on mortgage arrears and personal debt, which last summer proposed a series of protections for consumers in difficulty.

Central Bank figures published last month showed that one mortgage in 20 was in arrears of more than 90 days and more than 70,000 mortgage-holders were in arrears or had had payments rescheduled.

Under the new code, lenders must establish a resolution process and an arrears support unit and use them when dealing with arrears and “pre-arrears” customers.

Communication with borrowers will have to be clear and consumer-friendly and banks will be forbidden from unsolicited communication with a borrower more than three times a month.

Borrowers will be able to appeal an arrears unit decision and the lender’s treatment of their case under the process to an internal appeals board, which lenders will have to establish.

When a lender is determining the 12-month period, it must wait before applying to the courts to begin any legal action, it must exclude any period during which a borrower complies with the terms of alternative repayments, making an appeal to an internal appeals board or making a complaint to the Financial Services Ombudsman.

Bernard Sheridan, the Central Bank’s assistant director general of consumer protection, said the new measures would “ensure that all lenders use a fair and more consistent approach”.

The Professional Insurance Brokers Association welcomed the code but said the appeals process lacked independence, as a borrower appealing a decision “is merely dealing with different people within the same institution”.

Its director Rachel Doyle described the provision that lenders must look at the overall indebtedness as “eminently sensible”.