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Facts and friction

One of the biggest challenges of mortgage regulation has been the production of the mandatory key facts illustration.

The theory was simple. Consumers should have all the information they needed, presented in a straight- forward way, to make the decision-making process easier. The format was set out in a five-page illustration in MCOB. But the reality is that lenders have found it very difficult to present this information in a consumer-friendly way.

A couple of weeks ago, the FSA published the res- ults of a mystery shopping exercise. It concluded that: “Many mortgage firms are not yet complying with FSA regulations in the provision of disclosure documents to customers.”

For KFIs to be of any use to consumers, firms need to issue them at the correct time and in the correct format. While there is no defence for failing to provide a KFI or initial disclosure document, there remains a level of disquiet as to whether these documents are really delivering consumer benefit.

Many lenders have taken a belt-and-braces approach to producing KFIs in order to fully satisfy themselves that they are compliant. The result? A typical KFI offer of 10 to 12 pages, which all admit is pretty indigestible.

Lenders are already reviewing this following feedback from the FSA that it considers some documents are too long and too detailed. But the regulator needs to remember that the rules are still bedding in and we need to work together to ensure that the rules work properly to deliver documents that consumers can use.

As one building society chief executive explains: “There needs to be a more collaborative approach based on the premise that most lenders are responsible and should not be tainted with the assumption that all financial institutions are bad, when in fact most are good. The FSA has power to close down disreputable organisations, so why not beat up those that fail to deliver, rather than force everyone to conform to what is an albatross in the KFI solution?”

Some lenders have managed to produce a shorter document but, even at five pages, is this still too long? There is the view that, as consumers are making one of the biggest financial decisions in their life, sitting down and reading a few pages should not be too onerous. But this fails to address what goes on in the real world. All most people want to know is that they will be lent the money to buy their dream home.

As one society puts it: “Having talked to applicants, what they are concerned about is how much will they have to pay now, how long any discount or fixed rate lasts and whether there an early repayment charge. Much of the remaining information is so technical that applicants simply gloss over it. Details such as the APR or total amount payable are seen as irrelevant because what matters is the size of the direct debit from their bank account.”

The increased length of the interview has also cut down applicants’ willingness to shop around, which makes the KFI less relevant as a comparison tool. The vision of applicants walking the high street and obtaining four or five KFIs before making an informed decision based on the information they contain is simply not happening in the way it should.

In addition, the volume of information which now has to be obtained from customers and the detailed nature of the documents has had an impact on the speed with which customers receive their mortgage information. This can result in frustrated customers finding it nearly impossible to get the sort of quick quote they are usually looking for when they are shopping around.

KFIs have the potential to really help people through the process of taking out a mortgage but the process has become bogged down in bureaucracy. We need to recognise that consumers have different needs and, while one person might want a couple of pages with the headline facts, another might appreciate going through the process in some detail.

The end point should be that we deliver something which meets the needs of consumers. We are not there yet but with more talking we could be.

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