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FCA warns lenders are ‘abusing the back book’ with rate hikes

Martin Wheatley BBA Conference 2012 480
FCA chief executive designate Martin Wheatley

Financial Conduct Authority chief executive designate Martin Wheatley says the regulator is concerned about lenders “abusing their back book” of borrowers by increasing mortgage rates.

The FSA will publish its retail conduct risk outlook on Monday which will set out the emerging areas of concern and troublespots the regulator is anticipating over the next year.

Speaking at a briefing on the FCA in Canary Wharf today, Wheatley said one of the areas of concern the risk outlook will highlight is around lenders that impose higher charges on existing borrowers as profitability is hit by the difficult lending market.

He said: “We are particularly worried in the mortgage space that in a low interest rate environment the gap for lenders [between rates paid to savers and rates charged to borrowers] makes it a very difficult market to be profitable in.

“One of our concerns is ‘abuse of the back book’ if I can call it that, so where you have got locked or trapped customers, that fees are being raised in inappropriate ways. Where firms’ business models are under pressure, and frankly lots of business models are under pressure for all sorts of reasons, there is a risk people go chasing profitability through pushing unsuitable products.”

Wheatley said the concerns were common to other sectors as well as the mortgage market.

Last month Bank of Ireland wrote to 13,500 buy-to-let and residential customers on tracker mortgages to warn them of plans to more than double the base rate differential it charges. Treasury select committee chair Andrew Tyrie has written to Wheatley raising concerns about the increase and questioning whether it amounts to misselling.

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