How brokers can cover their backs

The inability of some borrowers to understand a single thing about their loans used to be a taboo subject. Cynical people might suggest that it was only taboo because borrower weakness was something brokers were happy to exploit and therefore wanted to keep quiet. Or that lenders were keen to avoid the authorities\' beady eyes and avoid mis-selling scandals while continuing to shift unsuitable products.

However, the pragmatic view is that nobody ever had to measure borrowers’ ability to understand products before regulation. The Treating Customers Fairly initiative has changed the industry dramatically – and for the better I might add.

But as firms prepare for the Financial Services Authorities’ March TCF implementation deadline, the industry is realising that borrowers’ impatience, inattentiveness or downright stupidity is a problem. But I’m not raising the issue to enable excuse-making whenever firms comes in for criticism on TCF.

When brokers place Key Facts Illustrations in customers’ hands only to be cut short with something like, “Don’t worry about the complicated stuff, just tell me how much it costs,” they have limited responsibility. Brokers don’t want to cast themselves as strict teachers forcing slow pupils to read something dull. Yet if the FSA comes calling following complaints that borrowers didn’t know there were early repayment charges, what should lenders and brokers say? Rightly or wrongly, the former might be tempted to say that it’s brokers’ fault for mis-selling. All the latter can say is that customers were given KFIs.

The answer has to lie in documentation. The advances in processing speed and the use of technology have made signatures all but obsolete. But there is something useful about signatures – they put borrowers on the hook. I wouldn’t be surprised to see brokers asking customers to sign something saying they have read and understood all the material given to them.

Brokers and lenders must recognise the need to be able to prove that they made the utmost effort to communicate the relevant facts to customers. That is the extent to which it is possible to treat them fairly. After that point, brokers and lenders must ensure that they are treated fairly too.

If sales and lending are conducted responsibly enough to enable customers to make informed choices, borrowers must bear the ultimate responsibility for accepting loans.