Mortgage Introducer April 2021

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A bit too close to the edge? Robert Sinclair chief executive officer, AMI


have been hearing a new clamour from the world of equity release that consumers need to be made aware of all the products they might be eligible for and an impetus towards the need for holistic advice. Approaching this from the consumer perspective this appears eminently sensible, however I would ask all involved to think it through. The world of mortgage related lending is a regulated one. The government has tasked the FCA to authorise and monitor lenders and advisers and to provide the framework to protect consumers. In doing that job, the FCA has applied different rules and standards to the worlds of equity release, retirement interest only (RIOs) and conventional mortgages that may be repaid way past retirement ages. The rules set by the FCA permit lenders to select the types of products they offer. They allow advice firms to restrict their service offering by initial

disclosure. They set out where advice is mandatory or where consumers can have choice in how they interact. They permit lenders to set their own rules about who they want to lend to and who they allow to advise on and recommend their products. Individual lenders can prescribe additional controls over advice partners where they choose not to distribute direct. All participants in the market are governed by a set of FCA rules that have been consulted on, agreed and deliver a level playing field that allows open competition and no barriers to entry. More importantly in broad terms where the customer has affordability, then a conventional mortgage or a RIO is appropriate and can be advised on by all mortgage advisers. Where there is equity in a property, a need for borrowing and insufficient income to evidence affordability of repayment then equity release might be best. This brings with it additional FCA defined examination and authorisation requirements for those who advise on its suitability. Most advisers know how to have those discussions and get the consumer to the most appropriate outcome. My concern here is that we risk layering in cost and

complexity to the majority of relatively straightforward conversations to give wider options to what is a very small number with genuine needs. I am concerned that the issues raised last year by the FCA about advice standards in the equity release market have been lost. Much of the industry debate has been about widening the scope and extent of the consumer factfind, assessment of suitability and more product solutions. However, my analysis of the findings was that advisers should go deeper into identifying why the solution identified met the identified needs. Few firms have the ability or desire to move to that model and the FCA rules legitimately afford protection where firms chose to limit their scope. Moving too quickly runs significant risk. Lenders in these markets might be better served looking at the findings of the commercial lending case of Woods v Commercial First and considering if this has implication for them rather than challenging the quality of the advice being provided by firms that they agree to have on their lending panel. If they have concerns, the solution is already in their individual hands. M I

Still no new clothes


he Financial Guidance and Claims Act 2018 transferred the regulation of Claims Management Companies (CMCs) to the Financial Conduct Authority (FCA) and gave it a duty to make rules about CMC fees for claims relating to financial products and services. The FCA’s research found that conditions in the market allow CMCs to charge fees well above the value they provide to individual consumers. CMC fees are usually calculated as a percentage of the redress paid on a claim, charged on a no-win-no-fee basis. The FCA wants to protect consumers who have suffered harm and are owed redress from paying too much money for claims management services.

The FCA is currently consulting on the introduction of a cap to fee charges, for non-payment protection insurance (PPI) claims, based upon the amount of redress a customer receives for a single claim. The ceiling is to be set at £10,000, or lower for smaller claims. The cap will apply to all claims that could be taken through the statutory redress system, which includes the Financial Ombudsman Service and the Financial Services Compensation Scheme, even if they are pursued some other way, such as through court. The new rules will come into force three months after they are made, for contracts that are entered into both prior to and after the rules come into force, for all fees charged

after that date, but should be this autumn. CMCs will be required to ensure that customers understand the other methods through which they can make a claim. A standalone signed statement from customers, giving their reasons for choosing to claim through a CMC, will be required. These changes will help to ensure that customers who claim for redress through a CMC receive good value. We only hope that the Solicitors Regulation Authority, which regulates many of the firms responsible for the data subject access requests in the mortgage sector, will follow suit to ensure that the differences in the two regimes do not lead to consumer detriment.

APRIL 2021