Penalty interest on arrears - sub-prime

[Mrs Vimes]

Hi there,

A friend tells me he is being charged penalty interest on his mortgage arrears with a sub-prime lender.

Did MARP ban this or am I totally confused?

Thanks
Sybil

 

[Brendan Burgess]

They used to do this, but they were banned by the Mortgage Arrears Code on the recommendation of the Expert Group on Mortgage Arrears.

I suspect that your friend is not being charged, but check this out for an explanation:

Interest on KBC Mortgage Arrears

 

[Mrs Vimes]

Thanks very much Brendan.

It turns out he was being charged penalty interest while he was not engaging in the with the lender but he has now removed his head from the sand and the penalty interest has stopped.

 

[Brendan Burgess]

That is interesting. So they can charge it while the customer does not engage with them. I don't think that they can. But it has worked to get him to engage.

As part of the engagement, he should seek to have the penalty interest written off.

 

[Mrs Vimes]

Update on this

He got them to agree to refund the penalty interest, capitalise the remainder of the arrears and reduce the interest rate. Result!

Thanks very much for your advice Brendan.

Interestingly, they wanted to increase the interest rate until he mentioned that he had had a chat with a friendly solicitor who would be looking over everything before he signed it. Apparently the tune changed considerably when solicitor was mentioned. Makes you wonder how many people are being ridden over roughshod.

 

[Rudolph]

It might be worth pointing out that the 'benefits'/'protections' of the MARP only apply in cases where the customer is engaging with the bank. Where they are not engaging the MARP need not be applied.