In the last year, we have been monitoring firms’ non-real time qualifying credit promotions (promotions) and their compliance with our rules relating to promotions, which are in the Mortgages:
Conduct of Business sourcebook chapter 3.6 (MCOB 3.6). Our aim is to work with firms to improve the standard of information they supply to consumers, which must be clear, fair and not misleading.
During this period, some issues have come up repeatedly, and we thought it would be helpful to highlight these.
APR-related matters
The promotion must state an APR if it:
• contains price information for specific qualifying
credit that relates to:
– any rate of charge;
– the presence or absence of any payments, fees
or charges (other than the fees for advising on
or arranging a mortgage contract);
– the amount, frequency or number of any
payments, repayments, fees or charges;
– any monetary amounts; or
• refers to the availability of credit for consumers who might otherwise consider their access to credit restricted.
The APR must be no less prominent than that information or reference. It must be stated to one decimal place, using the phrase ‘The overall cost for comparison is X% APR’ (MCOB 3.6.17R).
Where the APR varies, for example depending on the consumer’s circumstances, the APR must be representative of the business expected to arise from the promotion. For an APR to be representative, at least 66% of customers:
• responding to the promotion; and
• who enter into a qualifying credit agreement; should be charged this rate or lower (MCOB 3.6.23R).
Should charges/fees be shown in promotions? Where a firm may charge a fee for arranging or advising on qualifying credit, it must include in the promotion a prominent indication of the amount of the fee if known, or a representative fee. The latter
must be based on the business the firm expects to arise from the promotion. Just putting a fee range would not be sufficient to comply with this rule (MCOB 3.6.27R).
A mortgage broker holding itself out as acting independently must give the consumer the option to pay by fee (MCOB 4.3.7R).
Together, these two rules mean that the broker must include fee
information in any promotion where it holds itself out as independent.
What product features should be included?
In promotions, firms must not display the drawbacks of any qualifying credit less prominently than any benefits (MCOB 3.6.4E). Examples of the benefits of product features and the related drawbacks are provided in MCOB 3.6.6G.
What about risk statements?
Our rules contain various prescribed words and phrases that must be used in the relevant circumstances – for example ‘early repayment charge’ and ‘higher lending charge’ (MCOB 3.6.9R).
The wording of required risk statements (‘Your home may be repossessed…’ etc.) is set out in MCOB 3.6.13R. MCOB 3 requires that certain information appear ‘prominently’ in promotions. MCOB 3.6.14G gives guidance on how we assess prominence. We consider that prominence must be assessed in the context of the promotion as a whole – having regard to the medium, positioning of the promotion and content.
Amongst other things, you may wish to consider type size, the position of the text, and the colour of the text and background when assessing prominence.
Can your firm refer to the regulator and use the FSA logo in promotions?
Yes, but there are conditions. If your firm names the FSA as its regulator in its promotion, and also refers to matters not regulated by us (e.g. unsecured credit), the promotion should make clear that those matters are not regulated by the FSA (MCOB 3.6.2G). A firm should not use the FSA logo in its promotion (except in its letters or electronic equivalents) unless it has an individual licence to do so (GEN 5).
Certain firms and industry commentators have asked how we are dealing with non-compliant mortgage promotions and questioned whether we are doing enough to put a stop to them. We are taking steps against firms that issue non-compliant promotions but our actions against these firms can often take
place out of the public arena. So, we thought it would be helpful to reiterate what actions are open to us and how we decide which cases to tackle.
As you're probably aware, we work in a risk-based and proportionate manner. This means our response to any situation has to be in proportion to the risks and within our available resources.
Enforcement, our most visible tool, is only appropriate in a small proportion of cases.
In thematic work, and therefore in much of our work on financial promotions, often one of our first actions will be to raise issues directly with firms so they can address and rectify our concerns quickly.
This does not preclude our using a wider range of enforcement tools with the firms, nor does it prevent our using a wider range of tools later.
We have asked firms to amend or withdraw non-compliant
promotions and change adverts at their next publication; or to give potential customers who respond to misleading promotions the correct information. We also visit firms as part of thematic
work or to assess their systems and controls in approving financial promotions. In certain circumstances we may also consider issuing firms with private warnings and, where there is a persistent or serious breach, referring them for formal enforcement action (the criteria for such referrals are set out in ENF 11.4).
