Under the first draft of the Consumer Credit Directive (CCD), published in November, the payment of commission would have been outlawed, as well as the collection of fees for work which was not taken to completion.
This, according to Richard Farr, director of the intermediary trade body, would have led to catastrophic implications for the entire mortgage market.
But when the second draft was debated this month, changes put forward by the two trade organisations prevented this portion of the legislation from being passed, much to the delight of AMI and the AFB.
Farr explained: “We made two amendments to the first draft to prevent this from happening but we had to be very careful as commission is already banned in a number of EU member states.
"But we managed to get the two motions carried, meaning individual member states are now given the authority to ban commission at a national level, if they so wish, instead of it being dictated to from a European level.
He added that the proposed changes would have hindered the house buying and selling process as it would have a dramatic impact on costs.
If the first draft was passed, it would have cost the mortgage industry billions to change its processes. It would have been detrimental to consumers as well as it would have completely eliminated free advice from the broker market.”
However, Mark Chilton, chief executive of Homeowners Mortgages, believed that fee charging would still remain an important part of the CCD and that the debate would continue throughout the rest of 2008 and beyond.
He commented: “It has always been one of the bigger issues of the CCD that you couldn’t charge more than a nominal fee for work which didn’t reachcompletion.
"However, for the health of the mortgage market, fees should be contingent anyway. So charging a fee, even if you don’t get a result, would be good for the market, with the exception of one area – you should be able to charge a small administration fee to cover the costs of gathering information which the client did not know or disclose during the initial factfind and budgeting procedure.”
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