Charges

The arrears charges and excessive charges requirements in this chapter 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. References in this chapter to 'customer' will include references to a former customer as appropriate.

06/04/2007

MCOB 12.1.5

The FSA 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 sale shortfall are not excessive and are subject to the same considerations as apply with respect to arrears charges under this chapter.

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MCOB 12.1.6

This chapter does not apply to a firm carrying on reversion activities in respect of a customer acting in his capacity as an unauthorised reversion provider.

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MCOB 12.2

Purpose

01/12/2004

MCOB 12.2.1

(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, to make charges transparent to customers. This chapter reinforces these requirements by preventing a firm from imposing unfair and excessive charges.
(2) The level of charges under a regulated mortgage contract or home reversion plan is not typically a matter for regulation. However, in certain limited circumstances, the FSA believes that customers should be protected from unfair and excessive charging practices. This chapter considers four specific circumstances, where:

(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;
(b) the charges imposed on a customer in payment difficulties are not based upon the costs incurred by the firm;
(c) the charges (including rates of interest) imposed on a customer under a regulated mortgage contract or home reversion plan are excessive and contrary to the customer's interests; and
(d) the charges made to a customer in connection with a firm entering into, making a further advance on, administering, arranging or advising on a regulated mortgage contract or home reversion plan, or arranging or advising on a variation to the terms of a regulated mortgage contract or home reversion plan are excessive.

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MCOB 12.3

Early repayment charges: regulated mortgage contracts

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

MCOB 12.3.1

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) able to be expressed as a cash value; and
(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.

31/10/2004

MCOB 12.3.2

A firm can choose the method it employs for calculating early repayment charges in accordance with MCOB 12.3.1 R. A firm should not use the 'Rule of 78' (as contained in Schedule 2 of the Consumer Credit (Rebate on Early Settlement) Regulations 1983), which is not appropriate as it effectively overstates the cost to the mortgage lender.

31/10/2004

MCOB 12.3.3

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.

31/10/2004

Early repayment charges to be disclosed in illustrations

MCOB 12.3.4

Before:

(1) entering into a regulated mortgage contract with a customer; or
(2) making a further advance on an existing regulated mortgage contract; or
(3) changing all or part of a regulated mortgage contract from one interest rate to another; a firm must disclose to the customer:

(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
(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.

31/10/2004

MCOB 12.4

Arrears charges: regulated mortgage contracts

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MCOB 12.4.1

(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.
(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.

31/10/2004

MCOB 12.4.2

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.

31/10/2004

MCOB 12.4.3

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

31/10/2004

MCOB 12.5

Excessive charges: regulated mortgage contracts and home reversion plans

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MCOB 12.5.1

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

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MCOB 12.5.2

A firm must ensure that its charges to a customer in connection with the firm entering into, making a further advance or further release on, administering, arranging or advising on a regulated mortgage contract or home reversion plan, or arranging or advising on a variation to the terms of a regulated mortgage contract or home reversion plan are not excessive.

01/07/2007

MCOB 12.5.3

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

(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) the degree to which the charges are an abuse of the trust that the customer has placed in the firm; and
(3) the nature and extent of the disclosure of the charges to the customer.

31/10/2004

MCOB 12.5.4

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

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MCOB 12.6

Business loans

01/12/2004

MCOB 12.6.1

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.

31/10/2004

MCOB 12.6.2

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.

31/10/2004

MCOB 12.7

Home purchase plans

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Who?

MCOB 12.7.1

The FSA 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 FSA website concerning the FSA's consumer protection powers useful.

06/04/2007