Have the deranged really assumed control of our financial services asylum? I ask, not out of some metaphysical or philosophical bent or by reason of paranoia stalking my every step but because of the consequences of the buzz-phrase of choice, ‘consumer detriment’.
Sir Howard Davis and his successors used the consumer detriment argument to remove the longstop, to instigate numerous retrospective reviews and also kickstart the RDR. Clearly it is a powerful tool which journalists, politicians and rabble rousers habitually use to influence policy and rewrite the rulebooks.
Of course, consumer detriment comes in all shapes and sizes. We have the misselling sagas and the deceptions that create both real and imaginary torment, such as the CMCs and their PPI trickery. We have a building society that uses its high-volume muscle to negotiate such high commissions that their customers pay 27 per cent more than through other channels. We have a regulator that, well, we all know that story, and then we have the Abbey.
Now if the Abbey took on human form it would quickly be captured and confined for its own good.
Stupidity forms an everyday part of the industry but Abbey has transformed it into an art form, a ballet of absurdity where the dancers are deprived of stability and the choreographer is both blind and unhinged.
Much of this insanity stems from another groovy sound bite that is gaining regular usage, that of the ‘responsible lender’ a term, which like consumer detriment, allows the user access to all manner of half-witted initiatives that would swiftly disappear if placed under the microscope of commonsense.
Abbey considers it is being responsible with its interest only loan criteria and outwardly such diligence should be commended, after all Martin Wheatley informed us that consumers behave irrationally and Abbey is surely there to save them from themselves.
Should lenders be allowed to impose nonsensical terms and conditions which are then explained away as ‘responsible lending’?
The question for the FSA to consider is at what point does inflexibility shift from reasonable to needless. At what stage does it create unwarranted consumer deficit?
Abbey recently denied the use of a £73,000 investment portfolio to repay £52,000 of interest-only borrowing. Its rules deny the use of investments made within the last year. Furthermore, its rules do not allow for any future growth, not even 1 per cent p.a. As £23,000 was invested in April 2012 so the full £73,000 cannot be used to repay this 21 year loan.
Lunacy, I hear most of you say. Well, consider this; Abbey is happy to allow the self same borrower to proceed as long as he signs a letter stating that he will sell his property when the mortgage ends in 2033.
To clarify, a loan with no repayment vehicle is acceptable as long as the consumer signs a letter confirming his irrationality but a loan where the consumer wishes to exercise logic and use investments some 40 per cent higher than the mortgage amount is unacceptable. Perhaps Martin Wheatley had Abbey in mind when speaking about irrationality?
To Abbey, and any other lenders who feel it appropriate to apply unbending rigidity in the name of responsibility, I remind them of Seth Hoffmans acute observation that “Rules are just helpful guidelines for stupid people who can’t make up their own minds.”
Alan Lakey is partner at Highclere Financial Services