# Should lenders be allowed to impose charges on defaulting customers?



## Brendan Burgess (16 Sep 2014)

The Irish government has to transpose the Mortgage Credit Directive into Irish law.  The Department of Finance has a consultation process   on some issues where the government has discretion. This is one of the   most important areas and I am keen to make a submission which would   reflect all sides of the argument.


*Discretion 26 *– Arrears and foreclosure (Article 28)

Measures to encourage creditors to exercise reasonable forbearance before foreclosure proceedings are initiated must be adopted as part of this Directive.

Ireland may require that, where the creditor is permitted to define and impose charges on the consumer arising from the default, those charges are no greater than is necessary to compensate the creditor for costs it has incurred as a result of the default.

*Consultation Question 26: If creditors are allowed to impose charges should those charges be restricted to the costs incurred by the creditor as a result of default by a consumer?*

Ireland may also allow creditors to impose additional charges on the consumer in the event of default. In that case a cap must be placed on those charges.

*Consultation Question: Should Ireland allow creditors to impose additional charges on consumers who default? If so, what would an appropriate cap be?*


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## Brendan Burgess (16 Sep 2014)

The Code of Conduct on Mortgage Arrears does not allow the imposition of charges or increased interest rates on people in default. 

I proposed this as a member of the Expert Group on Mortgage Arrears, so I agree with in principle. However, it should be reviewed. There seems to be widespread strategic default and there is very little penalty for this. 

People with cheap tracker mortgages can extend those mortgages without penalty simply by going into arrears.  At the very least, the lenders should be able to charge them the SVR on the arrears portion of the mortgage. 

Of course, a lender must be able to charge a borrower with the legal costs of recovering the loan. Do we need to provide for this in the legislation?


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