At a reception last night to mark the launch of its final Annual Report, MCCB highlighted the issues which MCCB would have considered and addressed had it continued to operate. These key areas are:
Non-advised sales
MCCB compliance activity and consumer research has regularly found evidence of confusion in the minds of consumers as to whether they have received advice or just information. MCCB is concerned that the use of scripted questions in non-advised sales (as permitted by the FSA Rules) to refine the range of products to be discussed may lead consumers to believe they have received some form of guidance, direction or recommendation. MCCB recommends that in all non-advised sales, consumers should be given a warning of the consequences of not obtaining advice (such as less access to consumer redress arrangements), and that only when actually providing advice should mortgage sales staff use the title 'adviser'.
Product confirmation/reasons why letters
The key Mortgage Code obligation on firms to explain in writing to the customer the reason for recommending a particular mortgage (the so called 'Product Confirmation' or 'Reasons Why' letter) is not a compulsory requirement under the FSA's mortgage regime. Many firms will continue to provide this service 'voluntarily' as it provides an element of 'discipline' within the mortgage sales process and helps a firm meet its record keeping and reporting obligations. It also provides both the customer and the firm with a most useful reference document in which to record a summary of the discussion leading to the product recommendation and mortgage sale. It is often one of the key pieces of evidence used to determine complaints.
Even though it will not be a compulsory requirement under the FSA, MCCB has urged lenders and intermediaries to retain this element of the mortgage sales process and provide this document to their customers.
Information disclosure
The new Key Facts Illustration (KFI) is a largely product-specific document, so many of the more general aspects of a mortgage that must be explained under the Mortgage Code are not replicated in the KFI. MCCB believes there may be a case in future for providing a small leaflet which lists for discussion all relevant general mortgage related issues prior to the production of the KFI.
Affordability and responsible lending
Research commissioned by MCCB and published in the Annual Report found that in most cases the issue of "affordability" was being covered adequately, although sometimes later in the sales process than would seem appropriate. MCCB welcomes lenders' use of broader based underwriting criteria and processes, which have largely replaced the old 'salary multiples', when determining the amount they judge an individual can afford to borrow, and recommends that mortgage firms take active steps to explain borrowing criteria in more detail to customers and the media.
Future Compliance Monitoring Strategy
Overall, MCCB's experience suggests that a cost effective compliance monitoring strategy should be based on:
- a risk based approach
- a range of compliance monitoring activities including desk research, mystery shopping, existing customer research and monitoring visits (including to small firms)
- keeping in close touch with larger firms
- offering guidance where possible as well as discipline and enforcement processes
Cost Effective Regulation
The principles-based Mortgage Code has focused on practical mortgage regulation, minimising bureaucracy and enhancing consumer protection and access to mortgage advice. The direct cost to the industry has been a modest £5m per year over the five years of MCCB's life, but these costs will grow significantly under the new FSA statutory regime.
The overall costs of regulation have grown significantly in recent years and consumer protection has improved. But does there come a point when simply spending more and more on compliance and regulation produces less or even no additional consumer benefit? MCCB believes the extension of FSA regulation to mortgages and general insurance is an opportunity for a fundamental review of regulation, which should seek answers to questions such as at what point is the extra cost no longer balanced by additional consumer benefit?
MCCB hopes the publication of its Annual Report will help stimulate the debate on future mortgage regulation to ensure that the FSA and industry successfully build on the platform MCCB has helped establish over the past five years.
Colin Harris, Chairman of MCCB says: "Our final Annual Report highlights the partnership we have built with the industry and the dedication of MCCB's staff, as key factors in MCCB's achievements.
Over the past five years, MCCB has overseen a significant rise in standards in the mortgage industry. The Code and independent MCCB model has shown that industry self-regulation can be effective. Its significant developmental effect on standards and the establishment of a culture receptive to regulation, where none existed before, should significantly assist the industry to handle the next step change that will come with the implementation of statutory regulation.
In continuing this progress, MCCB has identified key issues for future review to help the industry and FSA as they develop future mortgage regulation over the coming years. We hope this will stimulate debate as to how best to protect consumers and further increase professionalism in the mortgage industry.
As MCCB closes its activities, we wish all mortgage firms and the new regulator all good wishes for the future."
