The Financial Services Authority (FSA) has set out rules which will ensure there are proper protections in place for vulnerable customers in arrears on their mortgages or entering sale and rent back (SRB) agreements.
The announcement on the 25th June 2010 demonstrates the FSA’s commitment to intensive and intrusive supervision to ensure firms treat their customers fairly. It forms part of crucial next steps following the FSA’s Mortgage Market Review launched last October.
It defines the standards firms must follow on arrears handling and contains details of the full sale and rent back regime, to provide customers with greater protection from 30 June 2010.
The FSA has also confirmed its plans to make all mortgage advisers and those who arrange non-advised sales personally accountable. They will be required to demonstrate they are ‘fit and proper’, helping to clamp down on mortgage fraud and enabling the FSA to monitor individuals in the mortgage market.
Customers in arrears must be treated fairly by firms and the following key areas have been confirmed;
- Firms must not apply a monthly arrears charge where an agreement is already in place to repay the arrears;
- Payments by customers in financial difficulties must first be allocated to clearing the missed monthly payments, rather than to arrears charges, which can be repaid later; and
- Firms must consider all options for borrowers. Repossessions should always be the last resort.
A new rule has also been introduced requiring firms to record all arrears handling telephone calls and to keep the records for three years.
From 30 June sale and rent back customers will be better shielded from firms using aggressive or unfair methods. Some of the full protections include:
- Banning of exploitative advertising and high-pressure sales techniques and prohibiting the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature;
- A 14-day cooling-off period to give consumers more time to make decisions on sale and rent back;
- Banning of cold calling and prohibiting firms from dropping promotional leaflets through letter boxes;
- Security of tenure for customers for a minimum of five years;
- Measures to ensure all risks are clearly signposted to the customer, via FSA literature and during the sales process.
More at fsa.gov.uk
DebtWizard comment
Sale and rent back’ or ‘Fire sale’ schemes are offered to mortgage holders facing repossession.
In these schemes, the seller usually remains in the property upon its sale and they pay rent, in effect becoming the tenant.
This type of sale has attracted criticism from consumers, the media and debt advisers as many such sales have favoured the buyer, leading to the ex home owner being evicted from the property after only a few months into their new tenancy agreement. Also, many claimed they were preyed upon and taken advantage of because of their desperation and vulnerability.
Consumers should ensure that they only deal with firms and individuals that are authorised and make themselves fully aware of the risks involved in sale and rent back schemes. From 26 June 2010 consumers can check if a firm is regulated and will have access to complaints procedures if they are.
Under the new regime firms will need to meet certain conditions including a requirement for adequate resources and for the businesses to be run by fit and proper staff and in a respectable business manner.
Consumers are encouraged to call 0300 500 5000 immediately if they are aware of sale and rent back firms who continue to trade without being authorised.
More information about SRB schemes can be found on the FSA’s Moneymadeclear Website.
