FCA to review industry approach to mortgage arrears remediation

FCA to review industry approach to mortgage arrears remediation
Even if inadvertent, automatic capitalisation of arrears can lead to poor customer outcomes and firms need to put this right and make sure the practice stops.

The FCA has launched a consultation on the treatment of customers with mortgage arrears who may have been affected by the way firms calculate their monthly mortgage payments.

The FCA has identified that some mortgage firms have automatically included customers’ arrears balances within their monthly mortgage payments which are recalculated from time to time, for example when an interest rate changes. The FCA considers this practice to be ‘automatic capitalisation’ and a likely breach of the FCA’s rules.

It said that the automatic inclusion of arrears balances in customers’ mortgage payments "lacks transparency and can lead to harm" as it can take a customer longer to repay their arrears and may lead to inappropriate fees being charged in relation to the arrears.

The FCA recognises that a number of firms in the mortgage industry have identified this issue within some of their mortgage books but will monitor the work carried out by firms to determine whether customers have suffered as a result of their approach to remediation.


The regulator said it will reserve the use of formal interventions such as enforcement action to deal with any unfair firm behaviour and will consider redress for affected customers.

The FCA said it has not been possible to determine the number of customers affected by this issue across the industry but has currently identified approximately 750,000 affected customers. Due to the Bank of England base rate change in August, it believes this number may now be greater as the rate change may have led to further recalculation of some customers’ mortgage payments.

The FCA’s work indicates that the financial impact on the majority of affected customers may have been relatively small with estimated remediation  likely to be in the low hundreds of pounds per individual.

Jonathan Davidson, Director of Supervision – Retail and Authorisations, said: “Even if inadvertent, automatic capitalisation of arrears can lead to poor customer outcomes and firms need to put this right, and make sure the practice stops.  

“Customers do not have to take any action at this stage, as firms will contact them directly. Firms should start identifying affected customers immediately and not wait until the finalised guidance is published.

“To prevent similar issues to this one occurring in the future firms need to ensure that all systems are reviewed when considering the implications of a rule change.”

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