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FSA must ignore lender pleas over non-advised ban

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The FSA ended 2011 on a positive note with its mortgage market review proposals striking the right balance of guarding against irresponsible lending without unduly affecting current and future borrowers.

In announcing its stand-out policy of banning most non-advised sales the regulator gave a rare nod to the value of advice and rightly highlighted consumer confusion around whether or not advice, and the protections that come with it, is being received when a mortgage is taken out.

Unfortunately a few of the big lenders are less than happy with the FSA’s plans and have been spending the festive period plotting a lobbying campaign to attempt to change the regulator’s mind. The FSA must stand firm.

For too long many lenders have blurred the lines between advice and information when dealing with customers, allowing them to make their profits without any of the pesky responsibility and consumer protection that comes with an advised sale.

Around 30 per cent of mortgage sales are non-advised but many consumers do not understand the distinction in the service they are receiving. There is no direct link between risk and advice provision, with similars level of low and high risk products sold without advice, according to an FSA table published alongside the MMR (see table below).

The FSA’s cost-benefit analysis suggests increasing professionalism amongst bank staff will lead to one off costs of between £17m to £28m. Some lenders will argue these costs will be passed on to consumers with negligible benefits.

They have already pointed to FSA statistics, also published alongside the MMR (pages 162-163), which show little difference in the default rates between advised and non-advised sales as evidence to retain the status-quo. However, impairment issues are usually triggered by a change in circumstances, such as losing your job, and should not be seen as the over-riding benchmark of service quality.

Lenders are unhappy their staff will have to gain appropriate qualifications and abide by regulatory rules such as ensuring the suitability of the product. They will have to take on the extra business risk of an advised sale in terms of the consumer’s recourse to the Financial Ombudsman Service.

But all of this is what customers expects to receive when being helped to arrange often the biggest financial commitment of their lives.

Association of Mortgage Brokers director Rob Sinclair gives the example of where a lender writes to a customer at the end of a fixed rate or incentive period. In this situation a customer probably thinks that regulation is protecting them and ensuring the lender operates in their interests. These new rules will ensure that is the case as the communications will be linked to an advised sale.

Rather than adding another layer of unnecessary bureaucracy to lenders, these proposals will enshrine the protections and rights consumers think they are already getting.

The FSA must ignore the pleading of certain big lenders and stick to its guns over its non-advised sales ban. Consumers deserve the protection and service that comes from receiving advice from qualified and competent individuals.

Paul McMillan is editor of Money Marketing - follow on twitter: @mcmillan_paul

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Readers' comments (22)

  • I agree - lenders care about profits and not about the customer.

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  • For once, I agree with the Banks....

    If someone knows what they want - and the risks of 'buying' withiout advice (MAS can help here) is known to the person - I can't see any reason to stop someone arranging a mortgage on a non-advice basis.

    Adding advice adds cost - so why pay?

    I am hoping the end result though will be more people WILL want advice, after individuals start noticing they are making the wrong decisions (and can't blame anyone for their mistakes) and so the value of advice will be shown.

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  • Are all consumers morons then?

    The FSA is hardly the font of knowledge and virtue in all matters financial, or is it?

    Is banning not simply manipulating markets?

    What a load of toot!

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  • I think this is great news for consumers and advisers, as for too long we've seen the casualties of irresponsible lending. A lender has no interest in providing proper financial advice as his main aim is to get a commitment from the climb to take out as much borrowing as is affordable.

    If proper advice services had been in place post-1997 and it is unlikely that we would have seen the boom in lending particularly if advisers had been trained to show clients the long-term damage that high levels of debt can to to their long-term future.

    What is the point after all of individual declaring an income of £25,000 on their tax return but having a mortgage of £250,000 under a self cert mortgage application. Believe me this is the type of practice that has been going on between 1997 and 2007 with some banking organisations. We should never let lenders get into a powerful situation of dictating terms to the regulator it is only a recipe for disaster for both the economy and the industry.

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  • You can see where the confusion stems from - a person walks into a bank and has a mortgage arranged by a person whos name tag says MORTGAGE ADVISER and then finds out that they didn't have mortgage advice; it is something that certainly needs resolving somehow.

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  • Peter Herd - What a load of sanctimonious drivel!

    It is a perfectly reasonable to have an advice option, but to ban a non-advised process when someone knows what they want and a lender is happy to provide it - WHAT is all that about!

    If we need a dynamic business economy, why limit choices?

    I do not get the idea that people need to be saved from themselves if they are happy not to have advice
    .

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  • A lot of uninformed comment above but this is a crucial issue for those of us in the mortgage market. Non-advised sales lead to poor customer outcomes and are a rebrand of the much maligned "execution only". Congratulations Paul on highlighting such an important topic and you're right the FSA must stand firm.

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  • I dont do mortgages (and am IFA, not a bank adviser) so have no axe to grind, but is seems absolutely absured that fully grown adults who have jobs, families etc are no longer going to have the choice of either doing it themselves of receiving advice. Do not ban non-advised mortgages - give client the choice and have a disclaimer signed by them waiving the advice route if they know what they want. This is the Nanny state going ballistic. If a client knows what they want and now has to go through an advice process (and pay for it coz the banks aint going to abosrb the costs themselves) they will end up with the same deal as they initially wanted but it will have cost them more. Hardly better consumer outcome Hector, is it? But is not really about better outcomes for consumers - its all about expanding the power base to give access additional revenue streams to producing more fines in years to come.

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  • A lot of people shop around for mortages, popping in to a branch for some information from one of the mortgage advisers on the range of deals. They might not want to be caught with a 2 hour full finacial review. Brings back memeories of the Ancient Mariner, where a passer-by was grasped by the wrist and made to hang about for hours whilst being delivered of an interminable story.


    But the FSA seems to want to rule every part of every person's financial life. What a bunch of stalinists. 'Uncle JHoe' knows best...... yeah right.

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  • I've worked for lenders for many years and now work for an AR firm. I do not agree with the proposals; it will add time and cost to every transaction which WILL be passed on. If lenders build a full advice solution via the phone etc and take the hit, surely the lure is to push more customers direct to help balance the books? Are the borrowers who are confused lender-direct, or via intermediary?
    Adults should be able to choose, and if desired, choose execution only. Advice is valuable for some, but not all. I can't remember a single lender complaint in the prime market where they were confused about whether they received advice. Surely a simple solution is to have a simple common template (read: new IDD) that states whether you give advice or not, which lenders you deal with (or don't/can't), and if you don't give advice, a clear statement that you can only answer questions factually and the final choice on products is the consumers. Signed, stored, simple.

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  • I agree with Paul but would like to see this taken further and applied to all financial products.

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  • I have had many clients that "new what they wanted" but after advice from me bought a different product. Or more importantly seen clients be tied into a product by a lender (without advice) when they new the client was going to move, so as to trap the client with them so they cannot shop around when they move.

    How many of your clients buy insurance online and get a "cheap as chips" policy that does not pay out at claim stage - that is because the "new what they wanted" but did not understand what they were buying.

    Mis-Buying is the new Mis-Selling!

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  • The FSA regulates the service that consumers receive. As a broker I cannot transact 'non-advice' business as, by the very nature of personal interaction, it is virtually impossible to provide information without also giving influence at the very least.
    For once the FSA are doing something to protect the industry as well as the consumer. Lenders are encouraging consumers who prefer or need advice to forego this by marketing their non-advice service with cheaper products than those available via the advice route.
    The FSA proposals allow for non-advice purchases through non personal channels ie internet purchases, so the consumers who do not need help can still buy direct!

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  • I fully understand many of the comments regarding the removal of choice. However, there is a very real risk that without this ban, bank staff will steer customers towards products that are inappropriate, without any recourse when things go wrong.

    For instance, I recently had a client who, during our meeting, stated that they were keen to have a fixed rate product because they didn't want to accept the risk of potential interest rate changes.

    However, upon visiting their local branch of HSBC, the mortgage arranger stated that they would be better going on a tracker product because interest rates were not going to increase any time soon.

    Having worked for the aforementioned lender, along with several others, it cannot be questioned that these practices are common place.

    If an advisor made these statements and then things went pear shaped, there would be reason to complain, but if you go down the non advised route, where would clients go.

    I'm not big on over regulation, but it is clear that there are certain areas that definitely need to be addressed.

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  • To Anon (3:07pm)

    In the example you give, it doesn't matter what the person arranging the mortgage calls themself. That is advice. The bank employee has made a statement that has directed a customer to a particular mortgage. The customer will absolutely have the right to complain and receive redress. The reason the bank may get away with that is that the bank will "record" the meeting with a series of notes written by the employee. The customer will not record it so the only record of the meeting is what the bank employee wrote down. And you can bet that they won't recall the customer stating that they only wanted a fixed rate.

    This proposed regulation is once again a sledgehammer to crack a nut. What should be done is to leave non-advice as an option but to make sure that the customer is clear on the service they are receiving.

    The sales process also needs close monitoring to ensure that where a sale is described as non-advised it is in fact non-advised.

    Unfortunately, those 2 things are slightly more difficult to achieve than a simple ban so banning non-advice is what is being proposed.

    I don't support this ban (and certainly not from the point of view that I am a consumer also), but in a way, the banks have demonstrated that they can't control and police their own salesforces so they have brought this on themselves.

    It's like banning cars because speed limits are difficult to enforce.

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  • The only way non-advised sales should happen is where there is no human intervention on the part of the supplying firm.

    The problem with non advised sales where there is a human involved, is that the customer will almost certainly ask "What do you think" - at which point the whole process can, and probably often does, fall down.

    However, as long as Lenders can offer access to their products in some other way, for example by direct application on the internet, then non advised sales should be able to be continued with.

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  • 'Anonymous@ 3.07' - if the HSBC arranger stated they would be better off with a tracker product then that is giving advice. It isn't provision of impartial factual information that allows a customer to make his own choice.

    Unfortunately, therein lies the problem.

    It isn't about the theory of non-advised sales but the practical application.

    If everybody actually followed the rules then there wouldn't be a need for the FSA to propose this action.

    The KFI clearly states whether advice is given or not but research shows (as for other financial services areas) customers have never realy distinguished between advised and non-advised when dealing face to face or tele-sales.

    Is the issue that there is a lack of clarity that the borrower had advise or not or that there is actual consumer detriment in the mortgage products sold.

    It is surely only the latter that is a real issue that would warrant such drastic intervention for a product that has been bought direct for generations without major concerns.

    It is hard to see how this stance can be justified for mortgages if not applied to all other products.

    The next requirement will no doubt be a mandatory advice process for a cash ISA. After all there are the same issue for fixed and variable rates, the term to lock it up for etc.

    The FSA is not a regulator of price. If a customer accepts a product that locks them in for a fixed term then they should be able to take that decision. Choosing to buy your fruit at Aldi as opposed to Tesco or Marks & Spencers will mean you pay a different price for a bunch of bananas. Equally you can pay different prices for petrol even within different Tesco stores.

    If any adviser can guarantee they will give the applicant the cheapest fixed or variable deal throughout the mortgage term then I will take my hat off to them )and pity there PI insurer).

    Let the buyer beware and let adults act for themselves when they want to. There are plenty of people who want and get advice.

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  • I agree with many of the sentiments above, banning non-advised would be an unfair restraint on the lender and customer - I am an IFA & Mortgage adviser!
    Interesting the comment about not liking having qualified staff - Difficult to find anybody with any banking qualifications working for a bank these days!

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  • @Chris Miller re Ancient Mariner

    You must have read a different story than I have about the Ancient Mariner - in the story I read the only companion he had was an Albatross and he killed that!

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  • actually i would really like to know where the "around 30% of mortgage SALES are non-advised" comes from??

    is Mr McMillan telling me that only 30% of mortgages are arranged direct / in branch, or is the number higher but actually that somewhere contrary to my own understanding, Banks are offerrign advice?

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  • Hi Phil,

    FSA stats show around 30 per cent of total mortgage sales are classified as non-advised. This does not include direct "advised" sales. See second graph on page 159 of the following FSA report: http://www.fsa.gov.uk/pubs/other/mmr_datapack2011.pdf

    Regards

  • To Anonymous | 6 Jan 2012 12:24 pm

    I would be prepared to take the sanctimonious drivel! comment if you were prepared to put your name to it !

    I thing we do have to save people from themself as in my experience people tend to ask whats the maximum amount they can borrow - not what amount they can afford to borrow !!!

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  • Disillusioned by Democracy- Made into a scapegoat

    Taking a home mortgage is the most important financial commitment as it is the roof under which a family unit lives, or will live. The financial security of this ‘family unit should be paramount’ as this unit forms a base of what a good Democratic society ought to be in all good faith.

    I welcome the stricter rules to be put in place by the FSA later this year 2013 to prevent the indifference, the brow bashing of millions of innocent consumers trapped by the wrong advice given by brokers or bank managers, or their designated company solicitors who are employed to protect their interests alone.

    Entrapment by the lenders who turn a deliberate blind eye to the faulty financial products as we have seen the Mortgage protection Insurance etc, wrong mortgage home loans, sold by agents of their choice, to whom they paid a fee to, so as to procure financial scapegoats on the gravy train. Faulty products are marketed for financial gain alone for them.

    The ultimate responsibility should be on the shoulders of the lenders as not only is their money at risk if things go wrong, the borrowers home and investment for their kids is also put at risk.

    A Home, for a home buyer it is a roof to live under, and should be a safe place to live free from the Financial Criminals whose sole purpose is to confuse and sell products that are unfit for purpose.

    The Mortgage Conditions 2004 E& Wales is an instrument that condones conflict of interest in favor of the lender contrary to Statutes in the Law of Property Act 1925 E& Wales. The urgent revision of the Mortgage Conditions 2004 E& Wales should be revised to exclude, and remove all clauses that give rise to conflict of interest in favor of the lenders. eg: Allowing any amounts of money to the mortgage at any time when in the first instance when it is their recklessness that have caused the brow bashed consumer to seek redress in Court, as I was forced into taking, only to be turned away from the protection the Courts of law should actually give to me and victims like me.

    If rules have been broken by the lenders with substantiated evidence, they have to be penalized and if it means that financial ruination of the lender, by the mortgage made void by the Court so be it as for too long good hardworking citizens have been hoodwinked of their homes and businesses too quick by super fast eviction condoned by the Courts as I have experienced. The ‘heart’ has to be put back into the ‘Heart and the spirit of Democracy,’ ripped out by the greed of such financial agents who all collude to defraud.

    The Financial laws should be clear to the Judges who undertake such cases to stem the abuse and ignorance or bias should not be used as an excuse. The Judges should know and uphold what is right and should know what is wrong. Sound judgement should be passed and not those that are contaminated with bias or personal opinion.

    Today’s Judges and Prime Minister should look hard into the eyes of their children for it is their duty to protect their future of not only their kids but the future generations.

    No one buys a home with intentions to lose it as any time other than when the borrowers face a marital divorce. A home loan should be a happy home and not a one made in hell.

    I applaud Scottish Solicitors who have voted for independent legal advice should be statutory for both the borrower and the lender to prevent conflict of interest in favor of the lenders. Ambiguous Incentives offered by lenders to pay all legal costs giving the false illusion that legal advice in all common sense would be part of the package as we all know there are two sides to Property conveyance the legal side and the financial side. If I had benefited from legal advice then I would have made other choices before accepting to re-mortgage twice in two years for loan consolidation as I got more and more heavily in debt.

    Legal redress should be in place all the way when things have gone wrong, for litigants in persons and those who are fortunate to have legal representation deliberately duped by the lenders, their designated company solicitors and later their attorneys who go on to deliberately and pervert the course of Justice with sole purpose to win. The sanctity of Statements of Truth should remain so and those who mislead by this Oath should face the wrath of the law and not the other way around.

    Dragged into Court due to lack of disclosure by the same individuals who were responsible to put all the aspects of a legal mortgage in place. I have been burdened with the Court costs of £50,000/- £42,000/- of which already added to my mortgage with no conscience by the lenders or by the Judge that threw a valid claim out, based on personal opinion alone, and prevented me from seeking redress in High Court by adding his opinion that my claim was not of High Court matter, this could be seen as I understood as openly influencing the High Court Judge even before an independent Judge is allowed to consider the merits of the case, who later went on not to order the above costs, that has been anyway by the lender, due to the powers of the Mortgage conditions 2004 E& W booklet.

    After failing to put together a duly signed financial contract that stipulates all the terms and conditions to accompany the deed especially the end date when the amount has to be repaid, that should be in place in not only new sales of mortgage but also re-mortgage when a re-mortgage is passed on from one lender to the other.

    A fresh financial contract should be in place in addition to the Mortgage conditions booklet as no booklet can be taken to be or have the same weight of a contract.

    The borrower who is already at a significant disadvantage should have independent legal represent to be explained all the terms not added in the Key Facts. even if it means it will cost £500 more.

    The lenders designated company solicitors swore and Oath that they had never been asked by the lender to give me legal advice. Yet the deed was signed by proxy, in arms length on behalf of the lenders by an unnamed designated company solicitor. Knowing that the Key Facts would also be drafted legally by them had clearly stated all the ambiguous all legal costs would be an incentive.

    Hands on my heart If I had befitted from independent legal advice so many errors would not have been made and I would not have forced myself to seek the redress in Court down the line when things went wrong first to defend a super fast eviction, when I was recuperating after the hit and run accident in 2006 and then in 2009 shortly after my mother passed.

    Two traumatic events in a person life where one needed the solace of a home and not a prison wall, or the ugly noose of eviction! What I have had to experience has made me personally disillusioned by Democracy and all the goodness of Democracy that I grew to be in awe of.

    This is an absolute mockery of the sanctity of the Property Act of 1925 and a very cruel joke handled by those in power to protect the law of the land.

    I will live the rest of my life in this ugly shadow until my case is re-opened and reviewed independently and I am able to seek redress and damages.

    Now forced into negative equity and burdened to pay a higher monthly mortgage and I will be forced to sell my home to repay this loan when the term ends in fourteen years. No demands were made to put a repayment plan in place from 2005-2013. Eight years down the line and knowing that no statutory provisions to put a repayment plan in place was made at the inception of this mortgage the audacity of the lenders who now demand that I put a repayment vehicle to protect the additional court costs now added to the total amount.

    I am paying for the errors made by those who are allowed to trade, these lenders and all their agents still continue to trade DID NOT GET IT RIGHT when the responsibility was solely theirs alone AND DID NOTHING TO PROTECT MY RIGHTS. I am burdened by a predatory style mortgage prevalent in America.

    By a letter dated 23 Sept 2012 sent by recorded delivery to the various Heads of Departments and I still await a reply of acknowledgement from David Cameron and Nick Clegg, and the FSA we are now in April 2013 as I still hope and slowly die in despair that the Democracy I grew up to love, and cherish has let me down and millions like me.

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