Consumer finance regulatory news, 4 May 2020

Contents

• Download the full regulatory news bulletin
• COVID-19: FCA statement on mortgage prisoners
• COVID-19: mortgage lenders renew and expand on commitment to help existing customers
• FCA authorisation applications: FCA sample business plan and guidance for lending firms

COVID-19: FCA statement on mortgage prisoners

On 1 May 2020, the Financial Conduct Authority (FCA) published a statement on mortgage prisoners in light of COVID-19. It has also published a letter it has sent to mortgage lenders and administrators managing closed mortgage books on variable rate mortgages.

The FCA recognises that the current economic conditions mean that lenders are not yet in a position to offer new mortgage options for borrowers. Therefore, the FCA is extending the window during which firms are expected to contact mortgage borrower customers about switching options by three months, from 1 September 2020 to 1 December 2020. This is because the FCA does not want mortgage prisoners to receive communications encouraging them to switch when there are no suitable products available for them.

The rule changes to affect the extension are set out in the COVID-19 Mortgages Instrument 2020 (FCA 2020/18), which came into force on 27 April 2020.

In its letter on variable rate mortgages, the FCA reminds firms that customers on variable rate mortgages taken out before the financial crisis with higher risk characteristics must be treated fairly. Among other things, the FCA requires lenders to review their rates for such customers as a matter of urgency.

In particular, in respect of firms administering books on behalf of lenders, the FCA reminds them of their obligation to treat customers fairly where they have discretion to set rates on behalf of the lender. Where that responsibility lies with an unauthorised firm, the recipient of the letter should draw their attention to the FCA's letter. Such firms must still comply with general consumer protection law including the Consumer Protection from Unfair Trading Regulations 2008.

The FCA expects lenders to critically review their variable rates of interest against their funding costs, contracts terms and any other factors that may apply, and take any necessary action. Firms should be able to supply to the FCA on demand written support to justify their rates.

The FCA will follow up with firms in the coming weeks to assess how they have responded to this request and will take action where it believes customers are not being treated fairly.

The FCA will continue to seek solutions for all borrowers in financial difficulties.

COVID-19: mortgage lenders renew and expand on commitment to help existing customers

On 28 April 2020, UK Finance announced that mortgage lenders have renewed and expanded on a cross-industry voluntary commitment to help existing mortgage customers easily switch to a new deal when they reach the end of their term.

The commitment was announced in July 2018 by UK Finance, the Building Societies Association (BSA) and the Intermediary Mortgage Lenders Association (IMLA). Under the commitment, any eligible customer coming to the end of a fixed-rate mortgage is routinely offered a product transfer by their lender. This gives customers the option of switching to a new deal with their existing lender instead of automatically moving onto a reversion rate.

The renewed commitment has been agreed in light of COVID-19. It will enable eligible existing borrowers to opt for the security of fixing their monthly mortgage payments going forward, including borrowers who have been granted a payment holiday (who would not usually be eligible for a product transfer) or who have been furloughed.

UK Finance notes that product transfers allow borrowers to switch products quickly and efficiently as they involve less paperwork and tend not to require a new affordability assessment or full physical valuation. To be eligible for a product transfer, customers need to be up-to-date with payments, approaching the end of their fixed-rate term and not looking to borrow any more money. They also need to have a minimum remaining mortgage term of two years and an outstanding loan of at least £10,000. UK Finance also highlights that the commitment only applies to customers of lenders that are able to offer alternative products to their existing borrowers.

Eligible customers will be contacted by their lender when the end of their term approaches.

FCA authorisation applications: FCA sample business plan and guidance for lending firms

The FCA has published a sample business plan for use by firms applying for authorisation to carry on consumer credit lending activities under the Financial Services and Markets Act 2000 (FSMA), and guidance on the content of the business plan. It notes that some applications take longer because the business plan is not detailed enough and that the sample business plan explains the main things a plan should include.

Download the full regulatory news bulletin 

Authored by Yvonne Clapham