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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 18, 1997
CITYSCAPE FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-27314 11-2994671
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State or Other Jurisdiction Commission (IRS Employer
of Incorporation File Number Identification No.)
565 Taxter Road, Elmsford, New York 10523-5200
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(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code: (914) 592-6677
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Former name or former address,
if changed since last report
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Item 5. Other Events.
On July 18, 1997, the Director General of Fair Trading from the United
Kingdom's Office of Fair Trading (the "OFT") issued "Non-Status Lending
Guidelines for Lenders and Brokers" (the "Non-Status Guidelines") that are
applicable to mortgage bankers like City Mortgage Corporation Limited,
Cityscape Financial Corp.'s (Nasdaq: CTYS) (the "Company") indirect
wholly-owned subsidiary in the United Kingdom that focus on lending to
individuals who are unable or unwilling to obtain mortgage financing from
conventional mortgage sources.
Background
The Company's UK mortgage lending business is subject to regulations
promulgated under the United Kingdom Consumer Credit Act 1974 (the "CCA")
applicable to loans made to individuals or partnerships with principal balances
of pound sterling 15,000 or less. The Director General of the OFT has the
responsibility under the CCA for the granting of consumer credit licenses to
mortgage lenders and for subsequent monitoring of their activities to ensure
continued fitness to hold such licenses. In March 1997, the Company received a
letter from the OFT stating that, when determining the fitness of licensees,
the OFT will consider whether the licensee or its associates have engaged in
business practices which appear to be inappropriate, regardless of their
legality. The Company believes the letter was also sent to other lenders, as
well as intermediaries and other entities involved directly or indirectly in
the non-status lending market. The letter specifically sets forth certain
practices deemed by the OFT to fall within such categories, including the
appropriateness of standard/concessionary rate structures, as well as the
calculation of prepayments using the Rule of 78s method. Following receipt of
the letter, the Company commenced a review and evaluation of its practices with
respect to each issue raised in the letter and entered into discussions with
the OFT regarding its concerns raised in the letter.
New Non-Status Guidelines
The new Non-Status Guidelines highlight some of the main practices that
the OFT considers to be inappropriate, whether or not lawful. The OFT has
stated that if lenders and/or brokers continue these practices, the OFT will
take regulatory action against them. The majority of these practices are either
(i) not applicable to the Company's UK operations or (ii) practices in which
the Company believes itself to be in compliance or easily able to modify its
operations in order to comply with the new Non-Status Guidelines. In the new
Non-Status Guidelines, however, the OFT has announced that (i) dual interest
rate structures involving a large differential between the two interest rates
are inappropriate and should be discontinued and (ii) the Rule of 78s method of
calculating prepayments is inappropriate in the non-status lending market,
should be
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discontinued at the earliest opportunity and should not be applied to existing
loan agreements without some form of cap to ensure payments are not excessive.
Furthermore, the new Non-Status Guidelines stress that lenders who wish to
recoup administrative costs associated with defaults should do so in accordance
with a published scale of charges and with respect to prepayments, charges for
early redemption should do no more than cover the lender's unrecovered
administrative and other costs incurred to the date of prepayment.
Although the Company is still in the process of evaluating the new
Non-Status Guidelines and cannot at this time predict the impact of conforming
its operations to the Non-Status Guidelines, the Company believes that the
concessionary/standard rate will be eliminated in its new loan programs and
replaced with a single rate. The Company anticipates that the average single
rate that the Company will charge will be higher than the average concessionary
rate and lower than the average standard rate that the Company had charged
previously. Based on prior discussions with the OFT, the Company had previously
determined that it would discontinue originating loans that calculate
prepayments using the Rule of 78s method in August 1997. In the future, the
Company anticipates that it will calculate prepayments using alternative
methods in accordance with the new Non-Status Guidelines. The Company plans to
continue its discussions with the OFT regarding the effect of the new
Non-Status Guidelines on the Company's existing loan agreements.
The elimination of the concessionary/standard rate structure and Rule
of 78s method could have a negative impact on profit margins for the Company's
UK loans which could have a material adverse effect in future periods on the
Company's results of operations and financial condition, especially if the
Company is unsuccessful in its product-broadening efforts. In addition, there
can be no assurance that discussions with the OFT regarding the new Non-Status
Guidelines will not negatively affect the Company's rights relating to Rule of
78s calculations under its existing loan agreements or that the Company will
not be required to revise the terms of such loan agreements. Such revisions, if
they occur, could have a material adverse effect on the Company's results of
operations and financial condition.
Cityscape Financial Corp. is a consumer finance company that, through
its wholly-owned subsidiaries, Cityscape Corp. and City Mortgage Corporation
Limited, is engaged in the business of originating, purchasing, selling and
servicing mortgage loans in the United States and the United Kingdom, secured
primarily by one- to four-family residences.
Cityscape was founded in 1985 and is headquartered in Elmsford, New
York with regional processing offices in California, Georgia, Illinois and
Virginia.
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Contact: Robert C. Patent, EVP
Tim S. Ledwick, CFO
Cityscape Financial Corp.
(914) 592-6677
This report on Form 8-K contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
CITYSCAPE FINANCIAL CORP.
(Registrant)
By: /s/ Robert C. Patent
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Name: Robert C. Patent
Title: Executive Vice President
Dated: July 23, 1997