The FSA’s principle 7 – communications with clients – states: “A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading.
Yes, I agree, but the problem is that the FSA never listened to the market when it was preparing the mortgage key facts document.
Considering that research has shown that the average consumer has the reading ability of a 12-and-a-half-year-old, it is not consumer- friendly.
We all know that the FSA is charged with being the consumers’ protector but, in my view, the FSA fails to understand the average consumers ability to absorb the mortgage key facts document.
Back in 2005, I argued that the KFI needed a clear front page with a summary with the important statistics and information that the consumer would actually understand.
If you pick up a KFI currently, you have no idea who the lender is, what the product is, the term of the mortgage, what you are paying a month, or what the fees are.
Instead, you have to pick your way through the document, with most clients losing patience because it is so long-winded and takes several readings to understand.
Some KFI documents can even be considered misleading. Item five, for example – the overall cost of the mortgage – assumes that you will stay on that same lender’s SVR for the remaining term of the mortgage, which could be up to 23 years for a two-year fixed-rate deal. This is extremely unlikely in itself, and, of course, SVRs can move about as much as interest rates. Currently, the average SVR is nearer 3.5 per cent over base compared with 2 per cent a year ago.
Everybody knows they will pay a lot of interest over, say, 25 years but the current way of showing this is meaningless and misleading.
The one that also often gets a comment is item eight – what fees must you pay.
“What is all this about?”, “why is it different on each lender’s KFI?” and “I will be paying a lot more than that” are some of the more common client reactions.
I then have to explain another meaningless and misleading figure, saying that this is supposed to indicate the amount you pay for the privilege of using the same solicitor as the lender as he is representing you both, but you Mr Client have the privilege of paying it. Guaranteed to put the client’s head in a spin.
But despite this, the KFI merited very little mention in the FSA’s mortgage market review published last week.
The FSA seems to concede that consumers are not using the disclosure information in the way intended, to compare products. The review says: “Disclosure was intended to enable consumers to shop around and compare the services and products on offer from different firms, and to help them make better informed choices. However, the evidence suggests that few consumers are using the prescribed documentation in the way we intended.”
But despite this, the FSA says it has no plans to change the current KFI: “We believe that we should retain the KFI given the significant set-up costs and the consistent message from research that the KFI is liked and used by consumers (although only a small number of more savvy consumers use it to shop around).”
I am a simple soul who deals with the consumer at the coalface, so what would I know compared with those in the Ivory Tower?
The fact that I know that it would make the KFI clearer, fairer and unlikely to be as misleading is anecdotal rather than intellectual.
Nevertheless, I have redrafted what I think a front page of a KFI should look like to make it readily understandable to the average consumer in the hope that someone at the FSA may just think I have a point.