Mortgage exit administration fees (MEAFs): November 2007 follow-up
On 1 August 2007 we gave an update on how mortgage lenders have responded to concerns that mortgage exit administration fees (MEAFs) have been increased unfairly. We had originally highlighted these concerns in a Statement of Good Practice (the Statement) which we issued in January 2007.
The update set out the different approaches firms are adopting to charging MEAFs for future customers. We based it on our analysis of the responses of a sample of firms, comprising a significant proportion of the mortgage market, to questions about how they will treat future customers.
After reviewing the contracts the sampled firms will use for future customers, we are concerned that some firms continue to include certain terms in their contracts which do not comply with the Statement and so may be unfair.
This note sets out our areas of concern and how we think firms should address these concerns.
Terms putting the 'burden of proof' on customers
In paragraph 3.10 of the Statement, we stated our belief that terms requiring customers to prove increases to MEAFs are not reasonable are unlikely to be fair. We are concerned that some firms either still include these terms in their contracts, or are interpreting this paragraph too narrowly, and are including terms in their contracts which may be unfair for similar reasons. This includes terms under which customers have to:
- prove that increases to other charges, not just MEAFs, are not reasonable; and
- pay charges on an 'indemnity basis'. Although we do not object to terms that require customers to pay the firm's reasonable expenses, we think using wording such as 'indemnity basis' could put the burden of proof on customers. We also think such terms are not plain and intelligible.
Variation terms
The Statement explains our view that variation terms should be drafted so that changes to MEAFs can only be for valid reasons clearly set out in the contract. We are concerned that some firms:
-
are still including variation terms in their contracts which allow firms to increase MEAFs either:
- without a valid reason that is specified in the contract; or
- for invalid reasons, for example, catch-all phrases which refer to 'any other valid reason' but do not clearly and unambiguously define any specific 'valid reason'1;
and/or
-
are interpreting the Statement too narrowly and are not considering the law and principles we set out in the Statement could also apply to terms that vary other charges, not just MEAFs.
We set out our views on how firms may approach drafting fair variation clauses in their standard form consumer contracts in more detail in our May 2005 Statement of Good Practice.
So we remind firms that when they review their terms and conditions they should bear in mind that:
- all terms and conditions should comply with the Unfair Terms in Consumer Contracts Regulations 1999 and all other applicable law. This includes that firms should draft all terms and conditions in plain and intelligible language;
- terms and conditions for MEAFs should comply with the law and principles set out in the Statement; and
- the Statement should not be interpreted narrowly and, where appropriate, firms should consider applying its principles to other charges, not just MEAFs.
1 See paragraph 3.8 of our Statement of Good Practice of May 2005
