The aim of the draft Guidelines is to provide greater detail on how credit institutions should give effect to Articles 18, 20(1) and 28 of the Mortgage Credit Directive (MCD) and, in this way, “ensure that these high-level provisions will be implemented and supervised consistently across the 28 EU Member States” and “thus contribute to the EBA’s objective of achieving a convergence of supervisory practices” . The EMF would like to recall that, on the basis of extensive consultation, discussion and negotiation during the legislative process on the MCD, the EU Institutions took the decision to take a largely minimum harmonisation approach to the Directive and to adopt high-level, principles in relation to the assessment of creditworthiness and arrears and foreclosure. The Co-legislators recognised the need to provide Member States with the necessary flexibility in order to take account of the specificities of their national markets. Prescriptive EU-wide legal obligations – either at the time or at a later date - would not only constrain long-standing national practices, but also potentially result in increased litigation. It is vital that this deliberate flexibility is maintained and respected during the transposition and implementation process.
The EMF would like to take this opportunity to underline that the flexibility and discretion provided for in the MCD does not equate to vagueness. The EMF would therefore caution against the use of vague notions in the draft guidelines, which could be a source of legal uncertainty and unnecessarily divergent local interpretations, and rather encourage a focus on objectivity.
Draft Guidelines on Arrears & Foreclosure
Draft Guideline 2.2:
The EMF understands that the motivation behind the privacy requirement is to ensure that where meetings are held with borrowers that those meetings are held in private; however, as drafted, the EMF is concerned that this draft guideline could be misinterpreted as a requirement for a lender to conduct meetings with all of its borrowers in relation to their payment difficulties, which is not practicable.
Furthermore, there is a risk that the reference to data protection legislation could be misconstrued as consent always being necessary, even, for example, in the case of an intermediary communicating payment default information to credit bureaus. The latter is information which is needed to safeguard financial stability and for which consent is not necessary. It should be clarified that the reference to consent relates to personal information such as the causes of default.
As an additional consideration here, in some Member States, mortgage lenders operate on the internet and do not have branches, meaning that it is impossible to fill a physical meeting requirement. We would therefore suggest that “meetings” be replaced by “dialogue”.
Draft Guideline 2.3: The exact aim and meaning of this requirement is not clear.
Draft Guidelines 3.1-3.4:
These draft guidelines appear to impose new obligations at both a procedural and information level that are not contained within the MCD and do not appear to reflect the aim of Article 28 of the Directive.
As an example of this, 3.1 covers borrowers’ pre-arrears and 3.4(b) imposes a new information disclosure requirement on creditors, in addition to the already extensive information requirements under the MCD. This information could be provided by the public instances themselves via the internet.
Draft Guideline 4.1:
The EMF would like to underline that the majority of cases where borrowers face difficulties in repaying their loans are solved amicably based on lender forbearance. However, this draft guideline appears to oblige creditors to accord concessions to consumers in arrears/past due. There are a number of concerns in this respect. Firstly, this could result in borrowers purposely not paying their instalments in the knowledge that they will receive concessions. Secondly, this could have a significant impact on risk-weighted assets, thus increasing the costs of mortgage loans and the risk of credit crunch phenomena. In the event of financial difficulty, there should be an obligation on borrowers to provide detailed financial information, which the lender can assess to ensure that the mortgage is sustainable. Where it is not deemed to be sustainable, the lender should be retain the right to decide not to offer forbearance and proceed to a different solution i.e. voluntary sale, enforcement etc., while the borrower may enter an insolvency arrangement or bankruptcy as a last resort.
Furthermore, the requirement on a creditor to offer total or partial refinancing of a credit agreement could present a risk of action being taken against the lender on grounds of a kind of “abusive assistance” (this notion exists in France, for example, in commercial collective actions) in the event that the borrower is still unable to meet his/repayments.
The EMF would therefore propose the following redraft of the Guideline:
4.1 The creditor is encouraged to should take into account the individual circumstances of the consumer, the consumer’s interests and rights and his/her ability to repay when deciding on if, and if so, which steps/forbearance measures to take. Forbearance measures can consist of concessions towards a consumer facing, or about to face, difficulties in meeting his/ her financial commitments. Concessions to the consumer could include:
Draft Guideline 5: The requirement on the lender to justify the reasons for the options offered to the borrower would introduce a subjective element to the explanation to be provided and furthermore present a risk that the reasons will be contested in court. It would furthermore place a significant administrative burden on the lender.
A requirement setting out the borrower’s obligation to co-operate with the lender should be included. Where a borrower does not co-operate, for example by ignoring correspondence (indicating that he/she might be unwilling rather than unable to meet repayments), then the protections under the Directive would not apply to the non-cooperating borrower and the lender should be permitted to proceed to the next stage in the process.
Also, it is important that any guidelines covering “non-primary dwelling” type residential mortgage borrowers i.e. buy-to-let borrowers, as a result of the national discretion in the MCD to include buy to let properties within the scope being applied, are formulated so that they do not either: (a) give rise to legal uncertainty or (b) unnecessarily extend mortgage resolution processes beyond the category of family homes, where contrary to buy-to-let which is a ‘discretionary’ type of ownership, the focus is keeping a roof over a family’s head.