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Are the MAS funding reforms fair on lenders?

Despite pleasing advisers, lenders are up in arms about proposed MAS funding reforms

Money Advice Service

FSA plans to reform the way in which the Money Advice Service is funded have been warmly welcomed by advisers, but lenders are angry at the extra costs they are likely to suffer.

Launched in April 2011, the MAS is a free service offering consumers advice on identifying monetary priorities online, over the phone and in person.

The service will remain funded through a statutory levy on the financial services industry but the proposed changes to how this money is allocated will see significant cuts for some sectors, for instance, advisers and mortgage brokers.

But mortgage lenders will have to shoulder a far greater percentage of the collective funding required to make up the total budget of £78.3m proposed for 2013/14.

The reforms aim to ensure that those who benefit from the MAS pay more. The FSA argues that lenders are a main beneficiary as nearly 30 per cent of MAS users access the site to find information related to mortgages, covering users of the online mortgage calculator and comparison tables.

Based on data compiled by the FSA and the MAS, mortgage lenders would see their costs for funding the service rise by 1,309 per cent, up from £1.1m to £15.5m.

At the same time, the mortgage intermediary market will see its funding requirements drop significantly: from £1.6m to £300,000, representing a 81.2 per cent cut.

LSL Financial Services director Jon Round says: “Any reduction in fees for advisers is good, especially given the minimal benefits received from MAS.”

John Charcol senior technical director Ray Boulger says: “Anything that reduces costs for the brokers in this market is going to be hugely welcomed. The fact the costs are being placed primarily on the businesses that will benefit from the ‘advice’ is given makes perfectly good sense. It is a pleasant change to see some common sense on a fee structure from the regulator.”

While this is good news for intermediaries, will the extra cost to lenders be borne by borrowers, either through mortgage availability or rates offered?

Some lenders have already raised concerns that the non-advised sales ban, finalised as part of the MMR last October, will lead to extra costs. Paying a huge sum to fund a Government advice scheme at the same time as being forced to scrap their non-advised sales arms is likely to grate with many lenders.

Consumers using the MAS website will be offered a comparison table identifying suitable mortgage products. They cannot buy any of the products in this way and will be required to go through a separate advised process with the lender.

Mortgage lenders are motivated to contest the proposals and have expressed concern that they were not consulted before such a large increase was proposed.

The Building Societies Association warns that smaller lenders will feel the impact of a hike in fees far more than the bigger lenders and could end up unfairly penalised by the proposals. It also questions whether the FSA’s method for calculating the benefit of MAS for firms is correct.

BSA director general Adrian Coles says: “This funding proposal has come as a bolt from the blue and with a consultation period of less than half the normal length. Under these proposals our members would be looking at a fee increase in excess of 1,300 per cent, which is plainly unacceptable.

“Using website click-through as a means of designing a payment structure is just bizarre. We and our members will vigorously opposethis proposal.”

Council of Mortgage Lenders director general Paul Smee says: “Lurches of this magnitude in budget allocation are most unwelcome to firms, especially when based on an unproven methodology.

“Changes of this nature need to be flagged well in advance and we are going to be examining these proposals very critically.”

LSL’s Round questions how damaging the effect of the MAS increase will be to lenders, given all the other variables affecting lending levels at present, but understands their anger.

He says: “I don’t think smaller banks and building societies will be too affected as the cost should be proportionate to the size of the lender and the amount of mortgages they do. At lender levels,this should be a relatively small cost, but every business, no matter what size, will not welcome increased regulatory costs, especially for something that reputedly has few users.

“The jury is still out on whether MAS is the best way for the money to be spent. If the only users are as a result of extensive advertising, maybe not that many people need this in the first place.”

Boulger also raises the question of whether consulting the MAS means consumers have effectively chosen to not pay for financial advice.

He says: “The bigger question is whether it is right for the Government to force companies to pay for something that consumers have effectively decided they don’t want to pay for.

“They have to cover the costs some way so they will be borne by consumers who are dealing with the providers. Should the MAS be there in the first place?”


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