The claims that ‘the
second charge market has been voluntarily changing to meet the needs of modern industry’ is absolute rubbish. The failure of MCCB’s voluntary code was a glowing example. Surely FSA regulation is working and brokers are forced to treat customers fairly by providing various quotes, finding a suitable loan and documenting the reason for choosing the provider.
Lenders in the unregulated secured loans market are charging more than two months interest – they are charging anything around 15 per cent APR to 32 per cent APR.
Some providers are of the opinion that the Association of Finance Brokers (AFB) becoming a part of the Association of Independent Financial Advisers (AIFA) will not benefit due to its size, and assumptions that secured loans are not going to be regulated by the FSA are very wrong. I am sure that after the September investigation of the secured loans market, the FSA will regulate it because too many cowboy lenders are involved.
Other than a few prime lenders, such as Alliance & Leicester, Abbey, Halifax, Northern Rock, etc, all other lenders need to drive up standards. In fact, some of the unsecured loans from Halifax and Northern Rock treat customers very fairly – indeed fairer than most of the secured lenders. The interest rate charged do not reflect the true credit risk. Secured loans are secured on the property like any non-conforming loans. Why then, can one can get a non-conforming loan starting from 5.5 per cent while most of the secured loans start at 11 per cent and above?
Another area of ‘rip off’ is payment protection insurance (PPI) at over inflated costs. A secured loan of £25,000 is increased to £30,000 by adding £5,000 PPI premium over 15 years. Most self-cert mortgage borrowers can opt-out easily. For second charge loans, most lenders force them to add on the PPI premium by indicating that this is one way of making sure that they receive the secured loan. This phenomenon is not unlike estate agents insisting that the buyer can purchase the property only through going through their resident mortgage adviser. If there is a call for estate agents to be regulated, I cannot see why secured loans should not be regulated by the FSA.
My final point is regarding commission payments to brokers. Some companies like add on in the region of £3,000 in broker fees.
This gives the impression that the introducer would get £3,000 fees which they add to the loan. So the client can see, for example, on a loan of £25,000 they are borrowing £28,000.
After completion, the packagers only provide a commission of about £700, keeping the rest for themselves. Surely, they get commission from the lenders? These packagers also retain 100 per cent of the commission for the PPI contract. It’s high time the secured loan market is thoroughly investigated by the FSA and be regulated to protect clients from loan sharks and ensure the customer is being treated fairly.
Yours sincerely,
Dr. Smarajit Roy.
Proprietor,
Achievers Associates
