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Lenders should not justify why they decline cases, says FSA

Lenders should not be required to justify why they decline mortgage applications to brokers, says the Financial Services Authority.

The regulator has today released a consultation paper on financial crime, which includes examples of good and bad practice.

It gives the example of a firm that requires underwriters to justify all declined applications to brokers as bad practice.

This opposes the view of the European Commission which, in its mortgage directive, is calling for all lenders to give detailed reasons for why they have refused a case.

The Council of Mortgage Lenders has argued in the past that if lenders are forced to disclose their reasons for refusing a case where fraud is suspected, it could provide useful information for the fraudster because they could use the information to get around another lender’s system.

It also advises lenders to vet recruitment agencies they use to employ staff and make sure they have the same vetting process for temporary and permanent staff.



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  • Grey Haired Underwriter 24th June 2011 at 11:45 am

    Perhaps it needs to be realised that the risk gets refused and not necessarily the borrower. A decline can come from a number of factors combined not just because of a single issue. It is also true that the Data Protection Act doesn’t help. I try to explain my decisions where I can but too many brokers just see this as a point of debate rather than a rationale and can be extremely painful not to say rude when they try and reverse the decision.

  • Bobby 23rd June 2011 at 10:40 am

    The FSA have had an agenga for many years to set out and wipe out the broker community. This is not even hidden or disguised in any way. They are close to achieving their goal with fines, slurs, licence withdrawals on top of 80% of the brokers who have thrown the towel in already. I would respect the FSA more is they just made a statement ” we do not want any brokers/ ifa’s in the market and want clients to go to their banks in future for mortgage and financial advise as its much easier for us to ” regulate ” half a dozen large banks.

  • mark wilkins 23rd June 2011 at 9:39 am

    Oh dear, surely this is fundamental business practice to tell someone why they have been turned down. That person will then be able to address the issue and hopefully move forward and obtain a mortgage…..the economy will then hopefully pick up and we could get some movement in all the markets!! I am afraid the people making these decisions, both lenders and FSA, do not have a clue how to run a business and treat customers fairly! They are not in the real world.FACELESS AND SPINELESS

  • BC 23rd June 2011 at 8:40 am

    As usual the FSA have retorspectively honed in on one potential problem but remain ignorant to what occurs in the real world. As the posts above show, refusal to disclose why a case was declined causes more time and aggravation which the consumer (whom the FSA purports to ‘protect’) eventually will pay for. I’m not denying that there is a huge amount of mortgage fraud going on (well, went on whilst the FSA were asleep at the wheel) but someone committing fraud is likely to know why a case might be declined in the first place. A genuine person is much less likely to realise that there are incorrect entries on their credit file etc…..

  • Lawrence Robbins 22nd June 2011 at 10:45 pm

    If Brokers are advised of the decline reason for every eventuality apart from fraud it won’t take them long to work out which cases are fraudulent !
    Where cases are presented with payslips that have been purchased from the internet, sometimes accompanied by bank statements and even ID from the same source the underwriter has a real quandary – is the client lying to the broker or is the broker in on it too? From 25 years of underwriting I have seen both options. During my time on-site with packagers I also saw my declines returned to other lenders with the same documents. There are first class brokers out there. There are others who do a major diservice to your industry

  • Lee Jones 22nd June 2011 at 7:34 pm

    I agree with all comments however we now have a real tangled mess of conflicting rules due to over regulation tripping one another up. My concern is the ICO always seems to be on the opposers side in that all the rules are stacked in another parties favour rather than the person it was supposed to protect. Then when anything goes wrong or mistakes are made by large institutes they hide behidn the act with authority and threat. I have had the same problem with my CRB recors all these quangos and regulators donlt know each others rules becuase they have been privatised to such an extreme that they themselves have beens turned into commercial money making practices. Its not too dissimilair to the NHS or Railways. A right bloody mess.

  • Andy Valvona 22nd June 2011 at 6:38 pm

    Yeah -lets not tell the intermediary why we are rejecting cases.

    Intermediary submits more cases – which are declined.

    Lender then removes the broker from their panel due to too many declined applications.

    It seems that the FSA is looking to eliminate the broker community. What is it an acronym for?: F**k Small Advisory (firms)

  • J Alan Campbell 22nd June 2011 at 5:16 pm

    So what exactly does treating the customer fairly mean?

  • Bill Wells 22nd June 2011 at 3:42 pm

    I had a case recently where the client was turned down. The lender was completely uncooperative but I was able to determine that the problem was a ‘credit-worthiness’ problem. However, the client had never had any credit problems. It took over a month and many frustrating letters and telephone calls to establish that the lender had viewed information held by Experian relating to someone with the same first and last name (different middle name)who had lived in the same apartment block at some point during the 3 years my client had lived in the block.

    We have a system in this country whereby anyone and everyone can deposit information on to a computer system run by a private company (Experian) which is then searched by banks, credit card companies, utility companies etc to establish someone’s creditworthiness. When the lender refuses to lend the client is left completely in the dark as to why he has been refused and it can be nigh impossible to clear his name because he has no idea which record of which company is in error. Especially so when the client actually has had no dealings with the company. So, for instance, if a credit card company files wrong information and you have never had a credit card with that institution, it is of no help if the lender advises you to check with your past and present creditors. Then you go to Experian who are the worst possible company in the land to deal with or to extract information from (indeed, you have to guess whether it is Experian or one of the other reference agencies because the lender won’t even tell you the source of their misinformation).

    The ICO have a lot to answer for – the Data Protection Act allows every Tom, Dick and Harry access to personal information and also provides institutions the capability to file unchecked, inaccurate information, and the ICO stands by and does nothing.

    Then, to add insult to injury, Experian uses the information on its computer to send e-mail trying to flog its other products.

    This is an appalling and totally unacceptable state of affairs. The ICO should be shot !

    My client did eventually get his mortgage !

  • Jon Hoar 22nd June 2011 at 2:35 pm

    This beggars belief. As has been commented:- Lenders who decline a mortgage should advise why- (except in case of fraud)-under TCF rules-one of the long distant croen jewells of FSA policy- strange how quickly-this becomes old hat. Carry on bashing the broker-business as usual ! Jon Hoar, Certus.

  • Mike The Mortgage Man 22nd June 2011 at 1:50 pm

    Fair enough – but never let the FSA say that transparency is important again!!!!!

  • john 22nd June 2011 at 1:19 pm

    if they dont want to lend then they dont want to lend – simples. as an underwriter you could make up any reason to decline a case – its not rocket science but it likely would ruin any relationship you had with brokers you were dealing with. if the case was a piece of rubbish then the relationship is probably not worth developing anyway.

  • AJK-Kop 22nd June 2011 at 1:18 pm

    O please give me a break- why doesn’t the FSA come out with what they really want to happen- ie-take brokers out of the equation and send everyone down the High Street for mortgage (non)advice- stop arseing arond with lame comments and nonsensical rules- End the FSA now!

  • Terry Wells 22nd June 2011 at 1:17 pm

    Both the broker and the client has the right to know. The client because of the TCF regulations.
    As the broker I view my relationship with the lender as a partnership. As such we both should protect each others interests. If there is somthing, possibly unacceptable in the past, or a credit issue,etc. we should be told. as long as it does not fall under tipping off. we can make a decision whether we should continue to deal.
    I hate this child-like attude by lenders, “we know, but wont tell you”. Lenders need to grow up.

  • john c 22nd June 2011 at 1:13 pm

    another case of “back the babk, Sack the IFA”

  • RW 22nd June 2011 at 1:10 pm

    Yeah why should they brokers are just dirt on the FSA shoes.

    Even after all the regulations over the years the FSA find brokers an uncomefortable group of people. Lets just keep making it more difficult for them to do a professionable service and perhaps they’ll all go away.

  • Maurice Edgington 22nd June 2011 at 1:02 pm

    I believe this needs some more intelligent thought. If a case is declined because it does not meet criteria it is reasonable to say what part. Whether this is due to credit score, adverse or general non credit reasons. If a fraud case is suspected a lender should issue a refer notice and investigate. A broker may then ask what happens next and the lender may say that the case has been referred and is awaiting further consideration.

  • Anon 22nd June 2011 at 12:48 pm

    So what’s the difference then between a broker using knowledge of a lender’s system to get around the barriers?

  • Martin Fairchild 22nd June 2011 at 12:41 pm

    Lenders fall back on the Data Protection Act, which is fair enough. The Halifax, however, won’t even tell the client why they have been turned down, which I believe contravenes the Act quite blatantly. The client has a right to know exactly what information the lender has on the customer, which would cause the decline in the first place; after all, it is quite possible that the information held is incorrect and needs changing! I would love to hear someone from the Halifax justify this.

  • Douglas Shillinglaw 22nd June 2011 at 12:39 pm

    Lenders who decline a mortgage application submitted by a broker should advise us why (except for suspected fraud cases) under TCF rules which the FSA have implemented because it allows us to investigate other lenders whose criteria the client matches & prevents multiple credit scores being done in the hope they may fit a lender’s criteria