Home FCA Handbook MCOB MCOB 12 MCOB 12.4 Payment shortfall charges: regulated mortgage contracts
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MCOB 12.4 Payment shortfall charges: regulated mortgage contracts

26/04/2014R
  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 or charges for a payment shortfall on a customer unless the firm is able objectively to justify that the charge is equal to or lower than a reasonable calculation of the cost of the additional administration required as a result of the customer having a payment shortfall.

  2. (2)

    [deleted]

26/04/2014E

The imposition of a charge for a payment shortfall 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)

15/12/2016R

When:

  1. (1)

    a customer has a payment shortfall in respect of a regulated mortgage contract;

  2. (2)

    a payment is made which is not sufficient to cover all of the amounts that are currently due under that contract and the firm must therefore decide how to allocate the payment; and

  3. (3)

    as part of that decision, the firm is considering the respective priority to be given to:

    1. (a)

      the current month’s periodic instalment of capital or interest (or both);

    2. (b)

      the payment shortfall; and

    3. (c)

      interest or charges resulting from the payment shortfall,

    the firm must set that order of priority in a way that will minimise the amount of the payment shortfall once the payment has been allocated.

15/12/2016G

MCOB 12.4.1BR does not preclude a firm applying part or all of a payment received to fees and charges not resulting from the payment shortfall (such as ground rent settled on behalf of the customer).

15/12/2016G

A firm may recalculate the periodic instalment of capital or interest (or both), provided that any such recalculation is consistent with the firm’s obligations under the Handbook.

If a firm exercises a power under the terms of a mortgage contract to recalculate periodic instalments of capital or interest (or both) using a mortgage balance that includes charges (such as arrears management charges) or interest arising because one or more monthly instalments were missed, the firm does not have to keep a record of the amount of each periodic instalment of capital or interest (or both) omitting any element of such charges or interest to comply with MCOB 12.4.1BR.

26/04/2014G

For each type of payment shortfall charge (for example, a monthly arrears management charge), a firm may calculate the same level of additional administration costs and payment shortfall charges for all regulated mortgage contracts where the customer is in payment shortfall, rather than performing a calculation on the basis of the individual regulated mortgage contract with the particular customer.

04/11/2024G

Firms are also subject to requirements on information provision and standards relating to payment shortfalls and repossessions (see MCOB 13 (Payment difficulties and repossessions)).

26/04/2014R

In calculating the cost of the additional administration required as a result of a customer having a payment shortfall, a firm must not take into account:

  1. (1)

    the following types of costs:

    1. (a)

      funding or capital;

    2. (b)

      general bank charges that are not incurred as a result of a customer having a payment shortfall;

    3. (c)

      unrecovered fees;

    4. (d)

      advertising costs; and

    5. (e)

      regulatory fines;

  2. (2)

    the costs of preparing financial reports for the firm unless there is an objectively justifiable reason to do so and the costs relate solely to the analysis and management of accounts in payment shortfall;

  3. (3)

    executive staff costs unless there is an objectively justifiable reason to do so and the costs relate to the day-to-day management of customers in payment shortfall.

26/04/2014R

In MCOB 12.4, ‘executive staff’ means the staff or business owners responsible for the management of the firm’s business.

26/04/2014G
  1. (1)

    For some firms, their executive staff will be the executive board members.

  2. (2)

    Executive staff costs relating to company strategy, including payment shortfall strategy, should not be included as costs relating to the day-to-day management of customers in payment shortfall.

  3. (3)

    General financial reporting costs, including all legal and regulatory reporting costs, should not be included as costs relating solely to the analysis and management of accounts in payment shortfall.

26/04/2014G

In calculating the cost of the additional administration required as a result of a customer having a payment shortfall, the firm:

  1. (1)

    may, where appropriate, take into account the following types of costs:

    1. (a)

      providing information or documents;

    2. (b)

      non-executive staff costs;

    3. (c)

      premises costs;

    4. (d)

      human resources costs; and

    5. (e)

      information technology costs;

  2. (2)

    should consider the extent to which the cost of the additional administration is shared with the rest of its business; and

  3. (3)

    should, where a type of cost is absent from the lists in (1) and at MCOB 12.4.4R (1), before taking it into account, consider whether it is appropriate to do so.

26/04/2014R

A firm must not impose a charge for a payment shortfall that is calculated as a proportion of the outstanding loan.