FCA says MCD to cost second charge market £13.63m a year

The second charge market will have to pay £13.63m every year to comply with the Mortgage Credit Directive and accompanying rules, according to the Financial Conduct Authority.

The FCA also says the new rules cost the market £2.86m as a one-off cost.

The charges are laid out in a recent FCA impact statement on the cost of MCD and extra tougher rules the regulator introduced in areas such as arrears handling, advice and rolling up fees and charges.

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The FCA statement says: “Second charge firms were not subject to our mortgage regime prior to 21 March 2016. As a consequence, we expected those firms to incur some additional cost in complying with our modified rules, minus any costs that would have been incurred had we copied out the MCD into our rules (costs which therefore would not be subject to an EA impact assessment).”

The FCA says that MCD rules around affordability assessments cost lenders a total of £330,000 as one-off costs and will cost £225,000 on-going annually.

The figure for brokers is £85,000 for one-off costs and £35,000 on-going every year.

The regulator says that reduced business volumes post-MCD added up to £11m less second charge business every year.

The FCA’s tougher rules on arrears handling for second charge firms cost lenders £600,000 to roll out and will cost £700,00 a year thereafter.

Meanwhile, the MCD rules on service disclosure are estimated to cost the entire market a total of £250,000 across the market.

Aside from the MCD, the FCA has made second charge firms subject to rules that already applied to first charge companies.

Rules around advised sales cost lenders £400,000 and brokers £700,000 as early standalone costs, according to the FCA.

The ongoing cost of advised sales is £1.6m across the market.

The need for second charge firms to report more data to the FCA cost lenders £500,000 as a one-off fee and annual ongoing costs of £300,000.

The fee for brokers was £200 each upfront and then £800 per broker per year.

The regulator’s approved persons requirements added up to £20,000 across the industry.

The FCA banning the automatic rolling-up of fees and charges had a further one-off cost of £150,000 to lenders.

Finally, FCA demands for consolidated debt payments to be made directly to creditors cost lenders £700,000 as one-off costs and has an ongoing annual cost of £200,000.

However, the FCA says this figure is an estimate and that the true figure may be lower.