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Regulation alerter: New MCOB requirements

Business Meeting Print publication

22/01/2016

Following on from the focus, within the retail financial services sector, on treating customers fairly (TCF), lenders will be aware of the FCA’s current drive to raise awareness of, and service standards for, vulnerable customers.

In Occasional Paper No. 8, which was published in February 2015, the FCA brought the issue of vulnerable customers to the forefront and acknowledged that vulnerable customers could include not only those with disabilities and impaired mental capacity, but also wider categories of people, such as those who have lost their employment, suffered a bereavement or are facing serious illness or financial difficulties.

In Policy Statement PS15/9, published in March last year, the FCA confirmed its proposals to introduce additional requirements to ensure that TCF outcomes are achieved specifically for vulnerable customers. To do that, the FCA has incorporated provisions from the Consumer Credit sourcebook (CONC) [1] into the Mortgage Conduct of Business rules (MCOB) at MCOB 13 [2].

The FCA is also introducing MCOB Rule 13.4A – Data sharing with other charge holders, which is similar to the requirements of Civil Procedure Rule (CPR) 55.10 to serve notification of legal proceedings on registered charge holders.

Rule 13.4A will require firms to notify the holders of legal or equitable mortgages in a property once legal proceedings have commenced. This Rule appears intended to help avoid instances of subsequent charge holders bringing their own possession proceedings where a prior charge holder already has a possession action underway.

Notices under MCOB 13.4A must be issued at the time of the commencement of proceedings, or as soon as reasonably practicable afterwards. Firms simply need to give notice of commencement of legal proceedings, and are not required to provide the level of information that the CPR requires for registered charge holders.

The new provisions, which are set out below, will come into effect on 21 March 2016.

New MCOB requirements

MCOB 13.3.1C R – Vulnerable customers

A firm must establish and implement clear, effective and appropriate policies and procedures for the fair and appropriate treatment of customers whom the firm understands, or reasonably suspects, to be particularly vulnerable.

MCOB 13.3.1D G – Vulnerable customers continued
  1. Customers who have mental health difficulties or mental capacity limitations may fall into the category of particularly vulnerable customers.
  2. In developing procedures and policies for dealing with customers who may not have the mental capacity to make financial decisions, a firm may wish to have regard to the principles outlined in the Money Advice Liaison Group (MALG) Guidelines “Good Practice Awareness Guidelines for Consumers with Mental Health Problems and Debt”.
MCOB 13.4A.1 R – Data sharing with other charge holders
  1. If a firm commences legal proceedings against a customer in respect of a regulated mortgage contract or a home purchase plan, it must give notice of the commencement of the legal proceedings to all persons specified in MCOB 13.4A.2 R at the time of their commencement, or as soon as reasonably practicable afterwards.
  2. If a customer voluntarily surrenders possession of their property to a firm, the firm must give all persons specified in MCOB 13.4A.2 R notice of the surrender at the time it happens, or as soon as reasonably practicable afterwards.
  3. If a customer is placed in an assisted voluntary sale process, a firm must give all persons specified in MCOB 13.4A.2 R:
    1. (a) notice that the customer has entered an assisted voluntary sale process within ten working days from the date the customer entered the assisted voluntary sale process;
    2. (b) notice of the proposed sale and details of the proposed sale price and method of sale at least ten working days before the date when the property is proposed to be offered for sale; and
    3. (c) details of the sale price within no more than ten working days from the acceptance of an offer to purchase the property.
MCOB 13.4A.2 R – Relevant other charge holders

Notices and other details under MCOB 13.4A.1 R are to be given to each person having a legal or equitable mortgage in the relevant property over which the firm has security under a regulated mortgage contract or a home purchase plan.

MCOB 13.4A.3 G

In complying with MCOB 13.4A.2 R, a firm should make reasonable efforts to discover the existence of other charge holders at the start of the assisted voluntary sale/litigation process.

WM Comment

There is no, one, concise legal definition of a vulnerable consumer to which the new additional requirements will apply, however the FCA has advised [3] that it wants firms to interpret this holistically in each individual case and it has referred specifically to the Occasional Paper No. 8, which takes a much wider-ranging view than just focusing on those with mental health issues. Firms would be well-advised to take a similarly broad approach.

With TCF and consumer protection generally having been high on firms’ agendas for some time now, it is anticipated that the new requirements will not place significant additional practical burdens on firms. However, firms should review all of their relevant policies and practices now, to ensure compliance on all fronts by the March deadline.

It is worth noting that whilst the rule relating to data sharing with other charge holders may save legal fees for some customers through avoiding separate possession actions being brought, all customers subject to possession proceedings will incur the additional cost of obtaining contact details for any legal or equitable mortgage holders.

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[1] See CONC 7 Arrears, default and recovery (including repossessions)
[2] Arrears, payment shortfalls and repossessions: regulated mortgage contracts and home purchase plans
[3] PS15/9 p. 51

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