I have come to the conclusion that it is possible to have too much of a good thing. I believe the mortgage industry has had far too much excitement of late (and not much of it of a positive nature) and the time has come to draw a line in the sand.
So I say – enough! Here, I am going to try to provide the antidote to the current market turmoil by remaining as staid, measured and boring as possible. (That, I hear you cry, should be easy enough for a lawyer.) Yes, the time has come to look at some nuts and bolts law – a guaranteed excitement-free zone.
The Consumer Protection from Un-fair Trading Regulations 2007 came into force in April 2008. The regulations contain a general ban on unfair commercial practices and also ban misleading and aggressive practices.
Importantly, they introduce the concept of a ‘misleading omission’. The regulations list 31 practices which are out- lawed, and these include:
- Falsely claiming to be party to a code of conduct,
- Describing a product as free if a customer has to pay anything other than the cost of responding or collecting a product,
- Falsely representing the risk to a consumer if they do not buy a product (and here there are echoes of the problems that practices surrounding the sale of payment protection insurance have caused).
It would be a mistake to think that this legislation is solely aimed at dodgy builders or used car salesman al-though, of course, they are also within its remit, and I have taken the view from the outset that they should form part of the Treating Customer Fairly work you are doing anyway.
You will be aware that the Financial Services Authority expressly states that its rules are supplemental to and not a replacement for the general law, so this legislation needs to be taken into account on top of industry-specific FSA material. In a speech to a recent Council of Mortgage Lenders conference Katherine Webster, manager of the FSA’s unfair contract terms team – yes, the FSA really does have such a thing – spelled out the regulator’s interpretation of the regulations and their importance as part of the FSA’s regulatory toolkit.
Webster stressed that contract terms are a visible factor in firms’ approach to TCF – you cannot easily escape from the material you put out into the marketplace. For example, whoever thought that the impossibly low collars on some tracker products would ever come under scrutiny?
The FSA’s work on contract terms identified 15 of the 20 contracts the regulator reviewed as containing at least one unfair term.
The approach embodied in the regulations refers to “a significant imbalance in the parties’ rights and obli- gations arising under the contract, to the detriment of the consumer”.
Webster suggests taking a step back and looking at whether each party would have thought any term fair from the other’s perspective at the time the contract was formed.
It is worth pointing out that, under the regulations, only a court can decide that a term is unfair but I can’t help but think the FSA’s wider role in TCF will mean this point becomes something of an irrelevant nicety.
However, unfair terms are unenforceable against consumers. It is therefore important to ensure that any term to be used is subjected to a fairness test in accordance not only with TCF re-quirements but also with the specifics of these regulations.
You must also satisfy your obligations under the FSA’s Mortgage Conduct of Business rules by ensuring that any potentially problematic term has been brought to the consumer’s attention as part of the pre-offer requirements. Again, the limits on collars on tracker deals spring to mind.
It’s important to be aware not only of the specifics of the regulations but also of the FSA’s other work on unfair contract terms. How many readers recall the details of the FSA’s statement on good practice from May 2005, or have recorded in their TCF work that this has been considered?
Look at the regulations, not least because – and I admit this borders on exciting – breaches attract criminal sanctions including imprisonment. You don’t want to get banged up on top of everything else.
Philip Tebbatt is principal of niche financial services law firm Slater Rhodes and can be contacted at firstname.lastname@example.org