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MCCB bids to close broker fee loophole

Many mortgage brokers are resorting to underhand tactics in a bid to dodge Consumer Credit Act rules which force them to refund fees, says the Mortgage Code Compliance Board.

The MCCB says it has found a number of mortgage intermediaries flouting CCA legislation by issuing borrowers with unofficial documentation which states that fees will not be refunded if the mortgage fails to complete.

It has also found brokers establishing in-house packaging firms in an attempt to avoid refunding borrowers as the regulations allow fees to be kept if a third party was involved in the mortgage application.

The MCCB is determined to stamp out the practices after revealing that almost 40 per cent of the borrower complaints it received last year concerned the failure of brokers to refund fees after a mortgage fell through.

Under CCA rules, being reviewed by the DTI, brokers are only entitled to charge a maximum of £5 to clients for every mortgage that does not complete within six months.

The MCCB says this may be a factor in motivating brokers to find ways to avoid refunding fees, which they believe should be paid whether a mortgage application is accepted by a lender or not.

Head of communications Brad Baker says: “Brokers should follow the guidelines if the mortgage does not complete and refund their fee to the borrower. They should not be hiding behind other documentation or small print to try to avoid having to comply with very clear legislation.”

Charcol senior technical manager Ray Boulger says: “Although the £5 maximum is certainly out of date, it is absolutely right the MCCB should crack down on these brokers who abuse the rules.”

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