FSA gets tough on lenders' arrears handling
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The Financial Services Authority has today set out the rules which will ensure there are proper protections in place for vulnerable customers in arrears.
It says today’s announcement demonstrates the FSA’s commitment to intensive and intrusive supervision to ensure firms treat their customers fairly. It forms part of crucial next steps following the FSA’s Mortgage Market Review launched last October.
It defines the standards firms must follow on arrears handling and contains details of the full sale-and-rent-back regime, to provide customers with greater protection from June 30 2010.
Customers in arrears must be treated fairly by firms and the following key areas have been confirmed;
- Firms must not apply a monthly arrears charge where an agreement is already in place to repay the arrears;
- Payments by customers in financial difficulties must first be allocated to clearing the missed monthly payments, rather than to arrears charges, which can be repaid later; and
- Firms must consider all options for borrowers. Repossessions should always be the last resort.
- A new rule has also been introduced requiring firms to record all arrears handling telephone calls and to keep the records for three years.
- From June 30 sale-and-rent-back customers will be better shielded from firms using aggressive or unfair methods. Some of the full protections include:
- Banning of exploitative advertising and high-pressure sales techniques and prohibiting the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature;
- A 14-day cooling-off period to give consumers more time to make decisions on sale and rent back;
- Banning of cold calling and prohibiting firms from dropping promotional leaflets through letter boxes;
- Security of tenure for customers for a minimum of five years;
- Measures to ensure all risks are clearly signposted to the customer, via FSA literature and during the sales process.
Lesley Titcomb, director responsible for the mortgage sector at the FSA, says: “With cases of vulnerable homeowners evicted from their homes after 6-12 months after selling to unscrupulous sale and rent back companies, tighter controls were vital. Sale-and-rent-back is often used by those who want to sell in a hurry to stay in their home, and so it is vital that they are better protected during what is usually a difficult period financially.
“We also think it is wrong that arrears charges should be taken from customers already in difficult circumstances and trying to get their finances back on track. Today’s rules make absolutely clear the standards we expect of firms, and we have already taken tough action against some of the worst offenders.”
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Readers' comments (2)
FSA walks on water? | 25 Jun 2010 11:02 am
It would appear the present new rules do not create quite enough paper to fell a rain forest therefore the following has been added:
1. Possession of the property can now only arise following the bankruptcy of the lender.
2. To enable the borrower to contact the lender mobile phones must be provided, at no charge, for all members of the family concerned.
3. Once a month while in arrears lenders must pay for a family pizza delivery to the borrower(s).
4. Should the arrears be repaid within a 10 year period then the lender, as a reward, and in the sprit of TCF, should pay for a holiday for the borrower(s.
5. Finally, on a slightly more sombre note let us not forget the immortal words of Winston Churchill who indeed prophesised the coming of hopelessly bureaucratic quangos and apparently argued:
“These people will act as though they walk on water and yet I would contend that for a nation to try to regulate itself into prosperity is like standing in a bucket, and trying to lift yourself up by the handle.”
...Nuff said.
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Glen McKeown | 25 Jun 2010 12:40 pm
One of the interesting aspect of the Coalition Government is the way they appear to have embraced the Welfare State and Socialism with such enthusiasm.
Whilst one would hardly argue with clear rules on handling arrears case, the FSA’s latest pronouncements go further than that.
They are going beyond regulation into ethical and moral control. Its more like a Religious Fundamentalist approach to business. Some of these regulations seem to reflect a approach that one would find coming out of the left wing of the old Labour Party.
Section 5(2) (d) FMSA 2000 states that “consumers should take responsibility for their decisions”. The new directives override this, for it goes far beyond the need to provide accurate information - it’s virtually protecting consumers from any action by lenders at all, thus absolving the consumer of any responsibility.
The Act also states that the FSA “must have regard to … facilitating competition between those who are subject to any form of regulation…” [Section 2 (3)(g)]. Does anyone really believe that commercial operations are going to start up in this country when a sizeable part of the regulations allow a Civil Service type body to rule, retrospectively, on selling techniques.
We have already seen a massive decline in the number of Insurance Companies in this country. Has this facilitated competition? Has the decline improved service standards, innovation, value for money? Do the FSA believe that sanctimonious regulation will encourage good competition in the lending sector? It seems inevitable that the market will narrow, and the remaining lenders will have less competition, in an growing market. Of course, most, if not all, of those lenders are likely to be the Banks, with whom the FSA have always had such a cosy relationship - much to this country’s financial cost.
Why do they do this - because they can. Just like British Rail, the FSA has a corporate structure, so it can do what it likes; hand out bonuses as it sees fit. The legislation provides it with powers to raise whatever income it wants, and there is no-one to say no. It can make whatever rules it likes, and there is no-one to say no.
There is no requirement for the FSA to demonstrate that anything they do has a positive effect or is based on solid research. Actually I could write a paper on the counter productive effect of the FSA, based on behavioural research that goes back 40 or 50 years. But it would be a waste of time, because there is no requirement for the FSA to listen.
They are a body, self absorbed in their own culture and self righteousness, growing more and more isolated from the industry they are meant to be regulating. They do not listen, and they certainly do not adapt.
These regulations will be used as the justification of further staff expansion, and therefore further cost on the industry. Have the FSA completed a cost/benefit analysis? Have they ever completed a cost benefit analysis? For example, how many “vulnerable houseowners” have been fleeced by “unscrupulous … companies” relative to the total level of the market. (Note the use of the emotive words in order to get the attention of the impartial press.) These figures are NEVER given. If the problem is 20% or more of the total market, then there is a real problem, and significant regulation may be justified, though it is still possible that even a problem of that size could be dealt with simply and cheaply, rather than increasing the administrative and cost burdens on a whole industry. If the problem is less than 5% of the market then, frankly, there is little justification is making a headline out of it, other than for self aggrandisement purposes. That level of deviancy is likely to occur in any market - thats partly why we have regulation - to ensure it never exceeds that level. Eliminating deviancy entirely is impossible; the debate is what level of cost will a market bear to keep deviancy within tolerable bounds. But as the FSA is not accountable, there is no debate, and it can use other peoples money as it thinks fit.
But why bother screaming? This Government, like all others, are quite happy to follow the tradition of rewarding failure, and saying the opposite. How else does one explain Hector Sants being rewarded with a position on the Board of the Bank of England. Remember that Sants, apart from presiding ineffectually over the collapse of the financial system, also recently admitted that Treating Clients Fairly had been an expensive failure.
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