New Financial Regulator proposals extend protection against bank repossession, writes PAUL CULLENConsumer Affairs Correspondent
IINDEBTEDNESS IS often felt as powerlessness, but new rules put forward by the Financial Regulator on arrears significantly tilt the balance of power in favour of mortgage- holders in their dealings with lenders.
The holders of more than 30,000 mortgages, who currently find themselves in arrears of over three months, should be able to sleep a little more soundly when these proposals are implemented at the end of the year.
They already enjoy statutory protection against repossession in the form of a 12-month moratorium on court proceedings by lenders, but this is being strengthened.
Under the revised code, lenders will not be able to seek repossession until 12 months have elapsed after revised payment arrangements break down.
Such an alternative arrangement might involve interest-only repayments, for example, at significantly less cost to the mortgage-holder each month.
Once a new arrangement is worked out, the repossession clock is effectively reset until it is restarted in the event of a new default. Banks and building societies are also prohibited from making a move on a customer’s home if the person has complained to the Financial Services Ombudsman or has appealed their decision.
The proposals represent a strengthening of consumer protection compared to the Government’s expert group on mortgage arrears, which reported last month. It stated baldly that the existing 12-month moratorium should not be extended and said nothing to soften the blow through mitigating proposals.
Other proposals made by the group, which also served to strengthen consumer rights, are included in the revised code of conduct published yesterday.
Most notably, banks and building societies will have to put in place standardised procedures, known as a Mortgage Arrears Resolution Process, as a framework for dealing with cases. “This is most useful,” said Noeline Blackwell, director general of Flac (Free Legal Aid Centres). “We found that people received inconsistent treatment between different banks and even between two people in the same bank.”
One of the flaws of the proposed new system, according to Flac, is that it is internal to the banks and building societies. “They have to like the outcome of the proposed alternative arrangement for paying the mortgage.
“If they say it’s not reasonable, that’s the end of it. There is no outside party involved.”
An aggrieved consumer can complain to the ombudsman but Ms Blackwell says that is “way down the line” and it is not even clear whether the ombudsman has the power to overturn a lender’s decision.
Some banks are worried that the new system will be abused by borrowers who have no intention of paying their debts, but the revised code of conduct is clear in saying that borrowers who don’t engage with their financial institution, or who lie about their circumstances, are at risk of repossession even before the 12-month period is up.
The new rules will apply to all lenders, including the subprime lenders who account for 40 per cent of repossession, with the exception of credit unions.
The tough bit for consumers to remember through any discussions is that the moratorium and revised repayment arrangements make no difference to the balance owned – except that charges and interest will add to the final bill.
All the rules in the world will not save some people whose mortgages are unsustainable and who may be ill-served by a process which defers a day of reckoning that is inevitable.
Even Flac says “the jury is out” on the need for a longer moratorium. The current proposals have little to say about the issue of unsustainable mortgages, which pose a problem not just for the borrower but for the taxpayer generally.