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FCA warns lenders are ‘abusing the back book’ with rate hikes

Financial Conduct Authority chief executive designate Martin Wheatley says the regulator is concerned about lenders “abusing their back book” of borrowers by increasing mortgage rates.

The FCA’s retail conduct risk outlook, published this week, highlighted concerns that lenders’ profits have been hit by the low interest rate environment and that firms are exploiting their existing customers due to limited new business.

Speaking at a briefing on the FCA in Canary Wharf last week, Wheatley went further, saying: “We are particularly worried in the mortgage space that the low interest rate environment makes it a very difficult market to be profitable in.

“One of our concerns is ‘abuse of the back book’ if I can call it that, so where you have got locked or trapped customers, that fees are being raised in inappropriate ways. Where firms’ business models are under pressure, and frankly lots of business models are under pressure for all sorts of reasons, there is a risk people go chasing profitability through pushing unsuitable products.”

Wheatley said the concerns are common to other sectors as well as the mortgage market.

Last month, Bank of Ireland wrote to 13,500 buy-to-let and residential customers on tracker mortgages to warn them of plans to more than double the base rate differential it charges. Treasury select committee chair Andrew Tyrie has written to Wheatley raising concerns about the increase and questioning whether it amounts to misselling.

Coreco director Andrew Montlake says: “The FCA is right to be concerned. It is not treating customers fairly to take in new business cheaply at the front end while upping the rates at the back end for existing borrowers.”


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