We have entered a world where important decisions are being made for us, regardless of whether we agree and despite evidence that rich veins of stupidity taint the method being used.
The Mortgage Market Review is an initiative intended to promote “responsible lending”. Regulatory logic says it will curb foolish lending practices and result in lenders protecting overenthusiastic borrowers from themselves.
FCA chief Martin Wheatley has stated that consumers are illogical, so it is no real surprise the regulator favours lenders herding applicants into yes and no boxes based on their views of what is correct. This begs the question of whether the MMR qualifies as yet another insidious form of nannying – a “we know better than you” attitude – or whether it is part of a more socially responsible way of doing things.
As with many questions, its answer probably falls somewhere in between the two. Some years back lenders were so eager to gain market share they eased their quality control to the point where almost anybody could obtain the loan they wanted at the appropriate rate. Equally, the market forces argument states that lenders should be free to lend to whomsoever they wish at whatever rate they deem acceptable – without promptings or threats from the regulator.
Nanny knows best?
Nannying is a despicable ethos popular in progressive circles, symbolising a world overseen by non-elected individuals and countless committees and working groups that instinctively know better than us how to spend our money, how to live our lives and also how to conduct ourselves. Eternal students, professional committee-sitters and generally those who have never actually worked sit planning our lives and devising stratagems, all aimed at reducing personal responsibility for the good of the whole. Who can trust the do-gooder when he smiles sagely and explains that it may cause pain but ultimately is for our own good?
With the MMR we have the classic situation, repeated countless times in the past, where institutions eager to avoid falling foul of the regulator devise processes and rules that refuse the sweet taste of logic and the enervating zest of reason. For the regulator, which has contrived this situation, it is all too easy to argue that this is commercial judgement at work whereas to experienced mortgage advisers and, frankly anybody with a functioning brain, it typifies automated process over rationality.
Chink of light
Wheatley’s subsequent comments that “some lenders are not approaching the rules in the spirit that they were intended” provides a glimmer of light that the regulator realises the negative outcomes that process over rationality will always deliver.
The financial services industry is not alone in this transition from free markets to over-regulated processes. This creep can be seen in the enthusiasm of various bodies and quangos to protect people from themselves. Schools cancelling parents’ races at sports day for fear of the legal consequences of an injury, warnings on packets of nuts that they may contain nuts and roads rendered barely navigable by interminable speed bumps and chicanes.
This skulking enthusiasm for a politically correct ethos – a world where nobody is offended or discommoded – typifies the route that financial services is taking.
When viewed through outsiders’ eyes, this mad pursuit is clarified and becomes even crazier because the foundation of the personal financial services industry was insurance, a product designed to mitigate risk.
One might reasonably imagine this type of product receiving wholesale support from the politicians and committee-monkeys, yet this massively important section of the industry is ignored and given little credence.
Less scope for interference
Maybe insurance policies providing financial independence represent bad news for nannyists. It certainly provides less scope for interference and less support for their own existence. Labour MP Margaret Hodge defended nanny policies in a speech at the Institute for Public Policy Research on 26 November 2004, stating: “Some may call it the nanny state but I call it a force for good.”
Another indication of this relentless creed is provided by the FOS. A firm was arguing with the Financial Ombudsdman Service over jurisdiction of a complaint and during this process the adjudicator wrote suggesting that the firm might like to make a goodwill payment to the complainant who was suffering stress due to delays the jurisdiction debate had caused.
When discussing this with a friend it provided the response that too many people are getting in the way. We talk glibly about streamlined application processes, guided advice and simple products, yet conversely obstacles are purposely placed in the way of every reasonable transaction.
If we could remove every rule, process or person that did not assist the advice/product purchase process the financial services industry and ultimately the consumer would be far better off and costs would tumble.
Alan Lakey is partner at Highclere Financial Services