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Full steam ahead

Lenders are on track to implement the Treating Customers Fairly initiative as long as difficult market conditions don’t derail them, says Peter Williams

At the end of last month, firms regulated by the Financial Services Authority had to contend with 2008’s first Treating Customers Fairly deadline. They must have suitable management information in place to test whet- her TCF is being met.

To offer firms greater flexibility, the FSA has been working towards implementing a principles-based approach to regulation as opposed to hard and fast rules.

As one of 11 principles to which regulated firms must adhere, TCF is a vital part of the FSA’s approach. It demands that companies treat customers’ interests as paramount.

The six TCF outcomes are:

• Fair treatment of customers must be central to corporate culture.
• Products and services must be designed to meet the needs of identified consumer groups.
• Clear information must be provided to consumers before, during and after sales.
• Advice must be suitable and take into account client circumstances.
• Products need to perform as firms have led consumers to expect.
• There should be no unreasonable post-sale barriers imposed on clients who want to change products, switch providers or submit complaints.

In November 2007 the FSA suggested that although firms were taking the initiative seriously, there was little evidence that preliminary measures towards meeting TCF were improving outcomes for borrowers.

But as far as the Intermediary Mortgage Lenders Association is concerned, the majority of our members have already met the FSA’s March target and the remainder are on course for its second deadline in December. It’s clear that intermediary lenders are committed to ensuring that TCF is built into their cultures.

In our most recent survey in Q1 2008, members were asked about their preparedness for the March deadline. Some 65% said they were already prepared while the remaining 35% reported they were working to introduce appropriate MI systems and would be ready by the end of March.

It’s worth noting that the founding members of the TCF Info Forum established in November 2005 were IMLA members and more firms have joined since then.

As the liquidity crisis rages on, the TCF initiative has come into the spotlight, particularly regarding arrears and repossession procedures.

Given the challenging conditions facing lenders and borrowers and the fact that well over one million fixed rate deals are scheduled to end in the next few months, it’s vital that lenders maintain the highest standards of customer service and help home owners in difficulties.

Despite arrears levels remaining low, TCF takes on particular significance in such cases, as does MCOB 13.

Most lenders treat struggling borrowers as sympathetically as possible. After all, it is in the interests of both parties to find effective solutions to overcome any problems.

The principles of TCF can serve to ensure that borrowers in distress are treated as individuals.

They demand that even in the worst case scenario of repossessions, borrowers are given the best advice and assistance, such as being directed to debt counsellors.

MCOB 13 sets out what might be seen as a demanding set of requirements regarding arrears and repossessions, given the behaviour of some clients.

At its heart is the requirement to work towards reaching reasonable agreements with customers.

The March TCF deadline is significant in that it demands that firms implement the appropriate systems and procedures to identify the extent to which their customers are getting fair treatment.

But as always the proof of the pudding is in the eating and in many ways this year’s second TCF deadline will be more revealing.

By the end of December 2008 firms must be able to demonstrate they are consistently treating their customers fairly.

The March deadline will give the regulator a strong indication of how serious firms’ efforts have been to put MI in place.

But by the end of the year we will see if they have embraced the TCF principles and how much work remains to be done.

Another area of focus for TCF is the industry’s use of cascade underwriting systems.

The regulator makes it clear that firms using cascade systems are responsible for ensuring they are compliant.

This issue is especially pressing as some believe that cascading never benefits customers, only lenders.

Ultimately, it’s essential that evidence be recorded to demonstrate that the products recommended to customers were the most suitable at the time.

IMLA will shortly issue its summary of the cascade process with the aim of fleshing out the FSA’s guidance in this complex area.

At a time when it can be difficult for customers to source suitable mortgage deals at all, some may take the view that cascading isn’t that important. Nevertheless, it’s still relevant. Similarly, some brokers are worried about the TCF implications of product withdrawals and we have been working with the Association of Mortgage Intermediaries to see whether anything can be done to tackle the difficulties that might arise.

But we must bear in mind the difficult market conditions facing lenders at the moment, particularly as the limited availability of some mortgage products can lead to overwhelming demand.

A particular product may attract a flood of applications beyond the levels lenders may have predicted or be able to cope with.

If they are swamped they may have no choice but to pull products or even ranges at short notice.

Naturally lenders will attempt to give as much notice as possible to brokers and borrowers but only within the constraints they themselves are operating under.

No lender wishes to damage their relationships with brokers and consumers. Every firm accepts that sudden product withdrawals are undesir- able but we would question whether TCF principles are breached by doing so.

Our view is that agreements in principle that have not been formally accepted by customers are not binding commitments.

TCF is a gradual process but IMLA is confident that lenders will have met last month’s MI deadline and will be able to prove their compliance with the December one too.

Inevitably there will be situations when the FSA guidelines are left open to interpretation.

In these circumstances we hope that the regulator will take a fair and reasonable approach given the unprecedented circumstances facing the industry.

IMLA is committed to adhering to the regulator’s TCF rules.

But in many cases firms are preoccupied with the broader issues of market disruption and the lack of available funding.

In an undisrupted world, smooth progression towards TCF compliance would be a given.

But in today’s market, given the funding pressures facing lenders, there has to be some recognition that the world has changed.

After all, in the prevailing market environment many companies are fighting for survival.

Would it be fair to hope that the regulator recognises the challenges lenders face? We hope we can rely on its support to enable us to move the TCF agenda forward.


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