CML news & views

We accept that lenders must have policies and systems in place to ensure they are treating borrowers in arrears fairly. It is also important that the industry regulator sends out clear, consistent and fair reports if they believe that firms are failing in this area.

Last week, the Financial Services Authority (FSA) published the results of its thematic work on arrears and possessions, responsible lending, and quality of advice, along with the first quarterly data series on the mortgage market.

From this, the key message given to media and the industry was that lenders are failing to treat customers fairly. But in tarnishing the whole industry with the same dirty brush, is the regulator treating lenders fairly?

The FSA first gave warning of its intentions to review lenders’ arrears management practices at our annual conference in December 2007. The FSA’s managing director at the time, Clive Briault, announced that consumer research undertaken as part of a review into the effectiveness of the FSA’s rules had revealed “a fairly consistent picture…across the market, in both the prime and sub-prime sectors” of lenders “appearing to be unwilling to consider cases on an individual basis, unwilling to agree a solution tailored to the borrower's individual circumstances, and apparently adopting a one-size-fits-all approach to arrears recovery.”

In response to this, he announced a thematic review into compliance with the mortgage conduct of business (MCOB) rules and the general principle of treating customers fairly.

This surprise announcement was even more perplexing when we discovered the “evidence” was only based on 40 interviews with borrowers who had experienced varying degrees of arrears problems.
 
But the tone of the announcement set an expectation within the media, government and public that there were serious problems across the industry.

The FSA’s press release of 5 August opened with the words: “The Financial Services Authority has re-iterated today its call for mortgage lenders to ensure they are treating customers fairly in the current market conditions.”

This invites the reader to assume that lenders are not treating customers fairly. But if you continue reading, you find – somewhat further down the press release – that “mainstream lenders were largely complying with FSA requirements and have policies and practices that should ensure that customers are generally treated fairly.”  

Publishing the thematic findings alongside figures from the mortgage lending and administrations returns (MLAR) created further confusion; lenders should, of course, follow the MCOB rules in all market conditions.

The review involved 13 lenders across the mainstream and specialist market (accounting for 24 brands). The FSA identified particular areas of concern in relation to some specialist lenders, including that they:

• operated a one-size-fits-all approach, focused too strongly on recovering arrears according to a strict mandate, without reference to the borrower's circumstances;
• were too ready to take court action; and
• had lower standards of systems and controls in place to control mortgage arrears handling, including training and competency arrangements.

We have urged the FSA to work constructively with those lenders to ensure there is shared understanding and agreement about the FSA’s requirements.

We accept that it was appropriate for the FSA to undertake thematic work on the back of the consumer research. Where lenders and intermediaries are not complying, then they should be informed directly, and appropriate action should be taken against them. But to publish a report in such ambiguous terms is unfair and confusing for the majority of lenders who are making significant efforts to comply.