In April and May this year the FSA commissioned a mystery shopping exercise of 82 visits or calls to 62 mortgage lenders and brokers as part of its priority work with the mortgage industry. The work was undertaken to establish whether firms were providing two key documents required by regulation to inform customers about the type of service a firm provides and about the cost, features and risks of a particular mortgage proposal. These are the Initial Disclosure Document (IDD) and the Key Facts Illustration (KFI). Findings showed that firms were non-compliant in 45 (55%) of the 82 mystery shops.
Of these:
- in 23 assessments (28%) the firm failed to provide an IDD or a KFI;
- in 12 assessments (15%) the firm failed to provide both an IDD and a KFI; and
- in 10 (12%) assessments the firm provided the documents but not at the right time.
Clive Briault, FSA Managing Director of Retail Markets, said: "These are disappointing findings. The key facts documents are designed to give customers clear, straightforward information on the services and products they are being offered to enable them to make informed decisions and to shop around. It is extremely important for all firms to comply with our regulations.
"We have been working with firms on the quality of these documents and will continue to monitor closely firms' distribution of them through further supervision work. If we find that some firms continue in these failings we will take this very seriously and the appropriate action will be taken, including enforcement action if necessary."
Mortgage firms have suggested that regulation has resulted in longer interviews with customers, and that the need to provide disclosure documents has been one factor in this. However, the mystery shopping indicated that there was little difference in the length of the interview process between those firms who complied with the requirements and provided the documents and those who did not.
