In our present and petrified banking environment, it seems that mortgage providers are only as good as their last line of funding and for an increasing number there are going to be difficult days ahead.
Northern Rock’s problems are well documented and there is no doubt that others relying on the same wholesale financing model will find it tricky to get the cash they need to continue running their day-to-day operations.
It is not just the way that mortgages are funded that has been getting firms into trouble this month.
Another firm, which has also had to deal with problems recently and worked hard to resolve them, once uncovered, is Nationwide. The building society came across a number of problems with the way staff were selling loan and credit card payment protection insurance policies and has withdrawn all its products in this area.
Although Nationwide refused to say specifically what has wrong, the fact that all products were withdrawn and staff have been put into a retraining programme gives some idea of how serious the lender felt the issue was.
As yet, there has been no communication with the market as to when clients can expect to be able to purchase loan and credit card PPI from Nationwide again and the lender has simply said it will look to start selling products in this area when its advisers are in a position to do so effectively and efficiently.
Whether one agrees with the rates that Nationwide and many other high-street providers charge for their PPI products or not, it is good to see that a lender of this size is able to monitor its activity effectively and be strong enough to take a decision that sees all products pulled when problems come to light.
However, now that the products have been taken off the shelf and staff put into training, it is equally important for Nationwide to assess exactly why the problems have arisen in the first place and get an idea of how many clients may have been affected.
The building society is looking at a sample of cases to see what sort of impact its poor procedures may have had on clients. If it finds that some individuals have bought products, which were unsuitable for their needs, it will then have to take things further and assess all its sales in this area.
If Nationwide does not do this, it will undermine its decision to withdraw the products in the first place and give out completely the wrong type of message at a time when clients in the financial sector are looking for as much reassurance as possible.
Certainly, if providers such as Nationwide are not capable of first diagnosing problems and then acting in the light of them to ensure that clients’ best interests are prioritised, then there is little hope that smaller providers and distributors will make the effort when they come into difficulties of their own.
The PPI market has been under the cosh for a number of years now and things are slowly building to a head with the initial findings of the Competition Commission’s investigation of the market due out this autumn.
Its full report will be delivered in a year’s time and with ongoing scrutiny coming from the FSA it is beholden on providers and distributors to get their act together or face significant sanctioning.
Nationwide has shown that self-regulation can help nip things in the bud and give a firm the opportunity to right its own wrongs without having to be knocked into shape by the regulator.
Indeed, given that Nationwide was fined £980,000 earlier this year for failing to have effective systems and controls in place to manage its information security risks, it knows how sharp the FSA’s stick can be.
For others watching the problems being faced by some of the most wellknown financial brands in the country, the lesson must be that burying their heads in the sand is not an option.
Problems left to fester will soon develop into a rot that is too deep-set to cut out and creates huge problems for not only the clients caught up in the issue but also for the long term survival of the provider or distributor in question.
There will, of course, be ups and downs. How firms deal with these problems as they arise is key to their success and many who may have swept issues under the carpet in the past, should really be thinking of dragging them back out into the sunlight and dealing with them before it is too late.
Once the regulator is involved, excuses will fall on deaf ears and winning back clients in a nervous marketplace will be more difficult than ever.