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MCOB 12.1 Application

Who?

MCOB 12.1.1 R

This chapter applies to a firm in a category listed in column (1) of the table in MCOB 12.1.2 R in accordance with column (2) of that table.

What?

MCOB 12.1.3 R RP

This chapter applies where a firm:

  1. (1)

    enters into, or makes a further advance on, a home finance transaction1; or

    1
  2. (2)

    administers a home finance transaction;1 or

    1
  3. (3)

    arranges or advises on a home finance transaction1 or a variation to the terms of a home finance transaction1.

    11
MCOB 12.1.4 R RP

The arrears charges and excessive charges requirements in this chapter1 will continue to apply to a firm after a regulated mortgage contract has come to an end following the sale of a repossessed property. The excessive charges requirements will continue to apply to a firm after a home reversion plan has ended.1 References in this chapter to 'customer' will include references to a former customer as appropriate.

1
MCOB 12.1.5 G RP

The FCA will expect a firm to ensure that charges made to a customer arising from the sale of a repossessed property and charges arising in relation to a saleshortfall1 are not excessive and are subject to the same considerations as apply with respect to arrears charges under this chapter.

1
MCOB 12.1.6 R RP

1This chapter does not apply to a firm carrying on reversion activities or regulated sale and rent back activities3 in respect of a customer acting in his capacity as an unauthorised reversion provider or as an unauthorised SRB agreement provider.3

MCOB 12.2 Purpose

MCOB 12.2.1 G RP
  1. (1)

    Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly. A firm is also under an obligation, as a consequence of this sourcebook's disclosure requirements,1 to make charges transparent to customers. This chapter reinforces these requirements by preventing a firm from imposing unfair and excessive charges.

    1
  2. (2)

    The level of charges under a regulated mortgage contract,2home reversion plan1 or regulated sale and rent back agreement2 is not typically a matter for regulation. However, in certain limited circumstances, the FCA believes that customers should be protected from unfair and excessive charging practices. This chapter considers four specific circumstances, where:

    2
    1. (a)

      the charges imposed upon a customer seeking to terminate a regulated mortgage contract before the end of the term of the contract do not reflect the cost of termination to the firm;

    2. (b)

      the charges imposed on a customer in payment difficulties are not based upon the costs incurred by the firm;

    3. (c)

      the charges (including rates of interest) imposed on a customer under a regulated mortgage contract,2home reversion plan1 or regulated sale and rent back agreement2 are excessive and contrary to the customer's interests; and

      2
    4. (d)

      the charges made to a customer in connection with a firmentering into, making a further advance on, administering, arranging or advising on a regulated mortgage contract,2home reversion plan or regulated sale and rent back agreement2, or arranging or advising on a variation to the terms of a regulated mortgage contract, 2home reversion plan or regulated sale and rent back agreement2are excessive.1

      122

MCOB 12.3 Early repayment charges: regulated mortgage contracts2

Early repayment charges to be expressed as cash and to be reasonable

MCOB 12.3.1 R RP

A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, an early repayment charge other than one that is:

  1. (1)

    able to be expressed as a cash value; and

  2. (2)

    a reasonable pre-estimate of the costs as a result of the customer repaying the amount due under the regulated mortgage contract before the contract has terminated.

MCOB 12.3.2 G RP

A firm can choose the method it employs for calculating early repayment charges in accordance with MCOB 12.3.1 R. A firm3 should not use the 'Rule of 78' , which is not appropriate as it effectively overstates the cost to the mortgage lender.

3 3
MCOB 12.3.3 G RP

A firm may calculate the same level of early repayment charge for all regulated mortgage contracts of a similar type (for example a tranche of regulated mortgage contracts offering a particular fixed rate of interest), rather than on the basis of the individual regulated mortgage contract with the particular customer.

Early repayment charges to be disclosed in illustrations

MCOB 12.3.4 R RP

Before:

  1. (1)

    entering into a regulated mortgage contract with a customer; or

  2. (2)

    making a further advance on an existing regulated mortgage contract; or

  3. (3)

    changing all or part of a regulated mortgage contract from one interest rate to another;1a firm must disclose to the customer:

    1. (a)

      in the illustration provided in accordance with MCOB 5, MCOB 7.6.7 R, MCOB 7.6.18 R, MCOB 7.6.22 R, MCOB 7.6.31 R, or MCOB 9; and

    2. (b)

      in the illustration provided as part of the offer document in accordance with MCOB 6.4.1 R(1) and MCOB 9.5;

    the maximum amount payable as an early repayment charge in respect of that regulated mortgage contract, if an early repayment charge applies.

MCOB 12.4 Arrears charges: regulated mortgage contracts2

MCOB 12.4.1 R RP
  1. (1)

    A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, a charge for arrears on a customer except where that charge is a reasonable estimate of the cost of the additional administration required as a result of the customer being in arrears. 1

  2. (2)

    Paragraph (1) does not prevent a firm from entering into a regulated mortgage contract with a customer under which the firm may change the rate of interest charged to the customer from a fixed or discounted rate of interest to the firm's standard variable rate if the customer goes into arrears, providing that this standard variable rate is not a rate created especially for customers in arrears.

MCOB 12.4.1A E RP

The imposition of a charge for arrears on a customer who is adhering to an arrangement under which the customer and the firm agree that the customer will make payments of a set amount per month (or other agreed period) on agreed dates may be relied upon as tending to show contravention of MCOB 12.4.1R (1)3

MCOB 12.4.1B R RP

When a customer has a payment shortfall in respect of a regulated mortgage contract, a firm must ensure that any payments received from the customer are allocated first towards paying off the balance of the shortfall (excluding any interest or charges on that balance).3

MCOB 12.4.2 G RP

A firm may calculate the same level of arrears charges for all regulated mortgage contracts where the customer is in arrears, rather than on the basis of the individual regulated mortgage contract with the particular customer.

MCOB 12.4.3 G RP

Firms are also subject to requirements on information provision and standards relating to arrears and repossessions (see MCOB 13 (Arrears and repossessions)).

MCOB 12.5 Excessive charges: regulated mortgage contracts, home reversion plans and regulated sale and rent back agreements2

MCOB 12.5.1 R RP

A firm must ensure that any regulated mortgage contract,2home reversion plan1 or regulated sale and rent back agreement2 that it enters into does not impose, and cannot be used to impose, excessive charges upon a customer.

2
MCOB 12.5.2 R RP

A firm must ensure that its charges to a customer in connection with the firmentering into, making a further advance or further release on, administering, arranging or advising on a regulated mortgage contract,2home reversion plan or regulated sale and rent back agreement2, or arranging or advising on a variation to the terms of a regulated mortgage contract,2home reversion plan or regulated sale and rent back agreement2are not excessive.1

1 2 2
MCOB 12.5.3 G RP

When determining whether a charge is excessive, a firm should consider:

  1. (1)

    the amount of its charges for the services or products in question compared with charges for similar products or services on the market;

  2. (2)

    the degree to which the charges are an abuse of the trust that the customer has placed in the firm; and

  3. (3)

    the nature and extent of the disclosure of the charges to the customer.

MCOB 12.5.4 G RP

Mortgage lenders 1are also subject to requirements relating to responsible lending (see MCOB 11).

1

MCOB 12.6 Business loans

MCOB 12.6.1 G RP

Firms are reminded that, in relation to a regulated mortgage contract for a business purpose in circumstances where MCOB 7.7.1 R applies, if there is a new early repayment charge or a change to the existing early repayment charge, MCOB 7.7.1 R(2) requires a firm to notify the customer within five business days of the maximum amount payable as an early repayment charge.

MCOB 12.6.2 G RP

1 Firms are also reminded that in accordance with MCOB 1.2.3 R, they should either comply in full with MCOB or comply with all tailored provisions in MCOB that relate to business loans.

MCOB 12.7 Home purchase plans

Who?

MCOB 12.7.1 G RP

1The FCA believes that Principle 7 requires charges imposed by a firm on customers to be transparent and that imposing unfair or excessive charges is inconsistent with Principle 6.

Note: A firm should also have regard to its obligations under the Unfair Terms Regulations.and may find material on the FCA website concerning the FCA consumer protection powers useful.