Deep pockets and the retrospectively wronged syndrome

22 September 2009

With the Financial Services Authority’s discussion paper on mortgage regulation imminent I’m surprised that we haven’t seen the appointment of a FSA Fairer Mortgage Task Force to explore the possibility of creating a universal mortgage product that is fair to all.

The concept of a FMTF would have dovetailed nicely into the ideas that FSA chairman Lord Turner eloquently expressed at the watchdog’s mortgage conference in May when he said that detailed analysis of the mortgage market was highlighting a very complex situation in which the FSA had to take account of short term trends as well as designing the appropriate long-term policy.

He said that careful thought had to be given to the relative merits of product specific regulation, sales regulation and company-level regulation.

So should the FSA end up recommending limits to LTV or LTI - the headline issue on which the debate about the future of the mortgage market sometimes focuses? he asked somewhat rhetorically.

Modestly he confessed that he didn’t have the answer “I don’t at present know and I make no apology for that lack of certainty”, he declared.”What I have tried to do today is to indicate that the issue is a complex one, which requires careful consideration and further empirical analysis, running up to the FSA September discussion paper, and indeed subsequently, in a wide ranging debate.”

So what better than the FMTF to provide the empirical analysis necessary to explore how a regulated mortgage product could be devised that would once and for all treat the customer fairly?

Comprised of representatives from all the watchdogs, so embracing Gordon Brown’s ‘big tent’ concept, the FMTF could have had inputs from the Financial Ombudsman Service, the Office of Fair Trade Trading and the National Consumer Council, as well as contributions from the FSA itself and perhaps even a guest input from Which?

Obviously one wouldn’t like to second guess the empirical findings of such an august body but if it was truly objective, rather than selecting evidence to reinforce pre-existing prejudices, it might have found that in their generality most mortgage products are fair, or suitable, when they are first taken out but problems occur when either borrowers’ personal circumstances change or something nasty happens in the economy to make life difficult for them.

This, thanks to the FSA’s treating customers fairly mantra, has given rise to the “I was Retrospectively Wronged Syndrome” or RWS for which lenders every now and again have to pay the price.

So vague is the TCF concept that what is viewed as fair by the FSA might be viewed as a suitable case for compensation by the FOS but as one former senior executive of the FSA pointed out to me, in the final analysis it doesn’t really matter. “Like it or not, an unhappy consumer”, he said, “is regarded as a wronged one and organisations with the deepest pockets can afford to pay the compensation”.