11 December 2023

The EBA publishes peer review on supervision of creditors’ treatment of mortgage borrowers in arrears under the Mortgage Credit Directive

The European Banking Authority (EBA) today published a peer review on the supervision of creditors’ treatment of mortgage borrowers in arrears under the Mortgage Credit Directive (MCD), assessing the conduct supervisory approaches of competent authorities in this area. The review, which was developed in response to the current economic conditions and high interest rate environment, found that competent authorities’ supervision is overall effective and has been adapted to reflect the current interest rates environment and risks to mortgage borrowers. However, the review found differences in the level of scrutiny which competent authorities apply to MCD creditors, including the identification of risks borrowers are facing. The report sets out some follow-up measures, both for individual competent authorities, and for all competent authorities more generally, to ensure that supervisory measures to mitigate consumer detriment are taken before the detriment materialises. The report also sets out some best practices in this area that might be of benefit for other competent authorities to adopt.

This is the first EBA’s peer review focussing on conduct and consumer protection issues. The review assessed conduct supervision of seven competent authorities and examined whether the steps they have taken effectively ensure that consumers in payment difficulties benefit from reasonable forbearance by creditors, taking into account the EBA Guidelines on arrears and foreclosures (EBA/GL/2015/12) and its Opinion on good practices for mortgage creditworthiness assessments and arrears and foreclosure. Peer reviews aim to strengthen consistency and effectiveness in supervisory outcomes across the EU and so do not look at the level of compliance by financial institutions, such as MCD creditors. National supervision of credit servicers was also outside the scope of this peer review. The latter are not subject to MCD requirements but will have to comply with  the Credit Servicers Directive from 30 December 2023.

Overall, the EBA found that the competent authorities under review have implemented the Guidelines in their entirety. However, the review identified some differences, including with regard to:

• the organisational set-up for the supervision of this area, with some competent authorities allocating significant resources exclusively to conduct, while others focus primarily on prudential supervision;
• the level of engagement with supervised MCD creditors to ensure their reasonable exercise of forbearance measures, with some competent authorities implementing different conduct supervisory tools and regular and/or ad-hoc communication channels, while others having a more limited intrusiveness;
• the effectiveness of procedures and/or policies to ensure preparedness from a conduct perspective for dealing with an increase in arrears or foreclosures as a result of changing economic conditions and/or market developments, with some competent authorities adopting a close engagement with MCD creditors, while others implementing a different level of supervisory intensity.
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