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Regulator Assessment Summary: Qualifying Regulatory Provisions

Title of Proposal

Minor Handbook changes related to home finance customers with a payment shortfall

Lead Regulator

Financial Conduct Authority (FCA)

Date of Assessment

November 2011

Commencement Date

24 February 2016

Origin

Domestic

Implementation of Cutting Red Tape Review

No

Affected Areas

All firms delivering financial advice in the UK

Core Content of the Proposal

The proposal focuses on clarifying the FCA's Mortgage and Home Finance: Conduct of Business (MCOB) rules, specifically MCOB 12.4.1BR, regarding the allocation of payments received from customers with a payment shortfall. The goal is to ensure that firms do not impose unfair or excessive charges by allocating payments in a manner that prioritises non-capitalised interest and charges over clearing the payment shortfall.

Key Rule Clarification

• MCOB 12.4.1BR requires firms to allocate payments in a way that minimises the payment shortfall, thereby reducing the total fees and charges incurred.
• The rule was updated to explicitly state that no part of a payment should be allocated towards un-capitalised interest or charges until the payment shortfall balance has been cleared.
• This aligns with the original intent of the rule but provides greater clarity to firms and consumers.

Glossary Definition Update

• The definition of "payment shortfall" in the FCA Handbook Glossary was revised to clarify that interest on missed payments, outstanding fees, and ancillary items do not form part of the payment shortfall.
• This reinforces the understanding that only missed periodic repayments of capital or interest are considered as payment shortfalls under FCA rules.

Business Impact

Affected Businesses

• Firms administering regulated mortgage contracts (RMCs) or Home Purchase Plans (HPPs) may be affected.
• Total estimated number of affected firms: 623

Cost and Benefit Analysis

Additional Information

• The FCA conducted a review of firms' payment allocation practices and identified divergent approaches.
• A survey was carried out to gather cost information, with 31 responses received.
• 25 responses included cost data, and they indicated that no significant costs would be incurred due to the proposed changes.
• The FCA believes that firms already compliant with the original rules would not face new costs as a result of the amendments.

References

• Consultation Paper 16/16:
  https://www.fca.org.uk/publications/consultation-papers/cp16-16-minor-handbook-changes-related-mortgage-borrowers-payment

• Policy Statement 16/25:
  https://www.fca.org.uk/publication/policy/ps16-25.pdf