EBF response to EBA’s consultation paper on draft guidelines on arrears and foreclosure
17 February 2015
The EBF welcomes the EU Institutions’ decision regarding the Mortgage Credit Directive to adopt a high-level principles-based approach to allow National Competent Authorities to implement the guidelines according to their national specificities.
However, the EBF considers that the following key points should be particularly underlined:
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The EBF considers that the EBA Guidelines relate to payment difficulties on an agreement regulated by the Mortgage Credit Directive, and not to payment difficulties in general. The reference to payment difficulties should be therefore further clarified because payment difficulties could be interpreted as referring to payment difficulties in general
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The need for adequate linkage among different directives exists in relation to the Consultation Paper on Arrears and Foreclosure procedures: point 4 on the resolution process could lengthen the time required to complete the procedures, with an adverse impact on Risk-Weighted Assets as governed by Regulation (EU) no. 575/2013
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The suitability assessment issue was analysed in depth by the European Parliament, the Council and the Commission when adopting the Mortgage Credit Directive (MCD). The “suitability assessment” was considered not appropriate for products such as mortgage and consumer credit and was rejected. It is therefore vital to clarify that the Guidelines do not refer/request any “suitability assessment” to avoid provisions being mis-interpreted extensively and introducing “de facto” a suitability assessment (for example in 1.1 (establishment of policies and procedures), 3.1 (provision of information and assistance to the consumer) and 4.1 (resolution process)
The text of the MCD was finalised in a way that avoids increased litigation between banks and borrowers (in the event of consumer default, the creditworthiness assessment will not be automatically considered wrong based on an ex-post evaluation). The Directive notably obliges intermediaries to assess creditworthiness and inform the consumers concerned (adequate explanations) while – at the same time – making consumers responsible for choosing the product, meaning that suitability assessment was not included in the MCD.
Given this, the European Banking Industry considers it extremely important to constrain the Guidelines to the decisions that were taken when approving the Directive, without broadening the provisions on creditworthiness or on arrears and foreclosures. Reopening issues already solved at a political level would not contribute to the stability of the legal framework in terms of certainty about the compliance obligations.
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The European Banking Authority’s draft Guidelines on arrears and foreclosure (based on the EBA Opinion on Good Practices for the Treatment of Borrowers in Mortgage Payment Difficulties) goes much further than the requirements imposed by the Mortgage Credit Directive notably as regards 1.1 (procedures for early detection), 1.2 (policies and procedures for effective handling of), 2.1 (training of staff) or 3.4 (information about available government/public schemes). It is also imperative to preserve a right balance between gathering relevant information on the financial situation of the customer and the respect of data protection requirements
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It is also important to insist on the fact that it should not be imposed to lenders to predict the financial situation of their customers. Indeed primarily failures concern the accidents of life (illness, divorce, job loss ...) generating an abrupt change in the financial situation of the customer
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The MCD was approved less than one year ago and must be implemented by March 2016, meaning that all national-level procedures will have to be modified to comply with the new Directive. The implications of the transposition of the Directive and the implementation of the Guidelines could be significant for firms’ MCD implementation programmes, and delivery timescales may be challenging
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