Lenders gain more control than ever under new Code of Conduct on Mortgage Arrears

27 June 2013

Viewed in its entirety, the revised Code of Conduct on Mortgage Arrears announced today (Thursday 27 June 2013) seems to be a set of rules designed to allow lenders to speed up and streamline their dealings with borrowers, with the lender remaining exclusively in control of the process and the outcome according to FLAC (Free Legal Advice Centre).

Re-acting to the publication of the new code, which is to come into effect on Monday next July 1st 2013, FLAC's Director General Noeline Blackwell said "The safeguards for hard pressed consumers who have fallen into arrears and are trying to sort those arrears out have been reduced even further by the new revisions. Lenders will control how they deal with arrears more than they ever did before. It is likely to result in borrowers in arrears coming under considerable pressure to accept whatever alternative offer is made to them by their lender, if one is made to them at all."

The Code governs a lender's interaction with borrowers under the Mortgage Arrears Resolution Process (MARP), a four step programme that lenders must follow when dealing with people in arrears and at risk of going into arrears on their homes. It does not apply to investment properties unless a person bought a property as an investment and now lets it out to cover the mortgage.
In the new revision of the Code, FLAC is concerned to note that:

  • Customers can be moved off tracker mortgages to a variable rate where "no other sustainable option is available" - in the opinion of the lender;
  • The 12-month moratorium on legal proceedings has been reduced to one of two options namely either three months after the MARP process is completed, or 8 months from the date arrears first arose, before legal proceedings can commence;
  • Unsolicited house visits can now be made by bank officials.
  • Banks can make their own policies in relation to their communications with borrowers.

According to Ms. Blackwell "The revised code re-confirms that the lender is the sole arbiter of whether a mortgage is sustainable. The bank will decide whether a borrower is cooperative, or what solution might be sustainable. There is no proper appeal process and there is no provision for advice and support to a borrower going through the negotiation with the lender."
In March 2013, FLAC compiled a detailed submission as part of the Central Bank's consultation process, outlining the organisation's main concerns with the proposed changes to the Code. FLAC's 14 recommendations focused on the urgent need to rebalance the exchange between borrowers and lenders and called for greater consumer protection.

According to FLAC Director General Noeline Blackwell, "the Code still fails to take account of the fact that many borrowers in arrears have other debts. The new Code does not guarantee a minimum protected income. The proceedings under the MARP will not be part of a repossession case if it goes to the court. Essential safeguards have not been put in place to counteract the possibility of abuse of increased contact. There has been no requirement that borrowers receive independent legal advice."

The legal rights organisation indicated that this was particularly worrying coming at the same time as the Land and Conveyancing Law Reform Bill 2013 is making its way through the Oireachtas. "That is designed to make it easier for lenders to repossess homes. Putting both measures together, it is clear that borrowers in arrears are under more pressure than they ever were before. By contrast, it is being made easier for lenders to repossess properties with every month that passes" Ms. Blackwell said.



Editors' notes:

  1. FLAC (Free Legal Advice Centres) is a human rights organisation which exists to promote equal access to justice for all. As an NGO, FLAC relies on a combination of statutory funding, contributions from the legal professions and donations from individuals and grant-making foundations to support its work. We offer basic legal information through our telephone information line and free legal advice through a network of 80 volunteer evening advice centres. FLAC also campaigns on a range of issues including personal debt, fairness in social welfare law, public interest law and civil legal aid.
  2. FLAC's submission to the Central Bank's review of the Code of Conduct on Mortgage Arrears is available to download.
  3. We summarised our recommendations on the CCMA review in a document available to download.
  4. FLAC's recent releases on personal debt law reform are available on FLAC's website.
  5. In particular, see our release on Weds 19 June re Seanad debate on the Central Bank (Supervision & Enforcement) Bill 2011