FSA warns lenders on ‘unenforceable' tracker contracts

The FSA has told lenders to ensure they exercise the principles of TCF for customers on tracker mortgages.

Jon Pain, managing director of retail markets at the FSA, also repeated warnings about dealing with arrears and repossessions.

Speaking at the Council of Mortgage Lenders' (CML) annual conference, Pain says lenders should not attempt to introduce contract terms that do not exist or are unenforceable for tracker rate customers.

Many trackers have a interest rate floor, a point at which they will not go any lower regardless of the Bank of England's base rate. This prevents lenders from facing huge losses should the risks of deflation become so great the base rate is cut to 0%.

Pain understands the risk a very low interest rate environment presents, but says that does not excuse lenders from breaching their duties to customers.

"Whilst tracker interest rate floors can be a legitimate term of a mortgage, it can only be if it is clear and unambiguous to the consumer and is consistently and prominently spelt out in the initial KFI and offer document throughout the sales process," he explains.

"If it is not you run the real risk of both breaching our disclosure requirements and having an unfair contract term you can't enforce."

He also repeated earlier warnings about treating customers fairly when they are in arrears and facing repossession.

"We want each lender to look at their internal arrears policy to ensure it aligns with the mortgage rules and treating customers fairly.

"Then to review actual current practice to ensure corners are not being cut, and to only take repossession action where all other reasonable attempts to resolve the position have failed."

Contact: John Bakie, Tel: 020 7484 9805, e-mail: John.Bakie@incisivemedia.com