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Borrowers must be responsible too

The Financial Services Authority is getting into its stride. Following a tentative start to its regulation of the mortgage market in 2004, it is beginning to flex its muscles.

Payment protection insurance is its target at present. The FSA recently unveiled a drive against the mis-selling of PPI and over the next six months it plans to carry out checks to improve the sales standards of firms.

Next on the agenda for the regulator is a fresh look at mortgage exit administration fees foll-owing a series of complaints to the Financial Ombudsman Service about the exorbitant exit fees charged by some lenders.

New advice for firms in relation to exit fees is expected shortly. With PPI and exit fees the FSA is focussed on whether consumers have been charged more than they should have been for things of questionable value.

Investigations of this sort are good. I am willing to bet that not every lender and broker in the market is completely blameless when it comes to PPI sales and exit fee pricing, and I support attempts to protect consumers from malpractice. But I’d like to make a general point about responsibility – of course lenders and brokers must act responsibly, but so must consumers.

The vast majority of the consumer finance industry is working hard not only to act responsibly but also to show that it is doing so. Many mortgage lenders will be on the FSA’s list for arrow visits and will at some stage have to demonstrate their compliance to an inspection team. Do consumers have the same attitude towards responsibility? In many cases the answer is no.

Too often, articles appear in which the cases of customers who have failed to read and comprehend perfectly clear elements of loan documentation are blown up into front-page stories in which lenders are vilified.

At some point the lending industry must take a collective stance and face down increasingly scattergun yet damaging criticism in the press. Their stance should be to re-emphasise the principle of caveat emptor. Consumer protection is important but so too is consumer responsibility.

In a recent article I asked whether personal finance skills should be addressed in schools. I’m sure that an increased focus on practical consumer finance in the classroom would benefit future consumers and the industry as a whole by promoting responsible behaviour.

But in the adult consumer population, many lack basic financial awareness such as the ability to understand the concept of interest. While these people need protecting from unsound or unfair financial advice and practice, lenders also need protection from allegations and potentially damaging publicity arising from baseless complaints.


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