'Narrow' mortgage repossessions code ignores consumers

3 February 2009

The Financial Regulator's proposed revised code to regulate the conduct of mortgage lenders is welcome, but is too narrowly focused for those who are currently in financial difficulty, a legal rights organisation warned today.

According to FLAC (Free Legal Advice Centres), the government is proposing a revised scheme for the regulation of mortgage arrears as part of its undertaking to consumers on the recapitalisation of the banks. However, the organisation concludes that on examination, the draft code does not cover a number of key consumer concerns at all. FLAC has called on the government and the social partners to commit to a more thorough and more public scrutiny of what it terms as a "currently very narrow" code.

In a letter to the Financial Regulator, FLAC has raised questions about the code's failure to address how to deal with those who are in arrears and who are in negative equity. FLAC stressed that the code overlooks several aspects of mortgage arrears and focuses only on involuntary repossessions, ignoring the fact that many people who are badly in arrears are trying to end the relationship with their lender in a civilised way and may wish to hand over the mortgaged property voluntarily.

"There is no guidance in the draft we have seen as to when a house should be valued, or whether lenders can continue to pursue those who hand their houses back for balances that they say are outstanding. This is what many people are now desperately trying to find out, and there is nothing in the draft code to handle this situation," according to FLAC's senior policy researcher, Paul Joyce.

The organisation also questions how the code will provide for effective investigations and sanctions in case of breach. FLAC is also critical of the lack of detailed information to be given to borrowers on the many costs and fees that a borrower may incur at the time of repossession.

"The Regulator is due to introduce this limited code at the end of the month," added Paul Joyce. "We need to make sure it covers areas of concern to borrowers and not just banks. Social partners, in their current discussions, should reserve the right to debate the code further - in consultation with the public and with legislators - as in its current form it will not be sufficiently clear or strong enough to protect consumers adequately."

You can download the full text of FLAC's submission (summary included).