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Passport control

The recent EU lending directive is not a first draft but the result of lengthy engagement with a wide range of stakeholders, including the AMI.

It is built on a Euro-pean bank-based sales model, where advice on debt is not routinely given. Loans are credit-approved and controlled, with mortgages in particular not advised on and sold following seductive advertising and promotion. Attention is on assessing the risks that both parties are entering into.

The EU acknow-ledges the need for a level playing field. However, intermediaries will be subject to a higher level of requirements on information, auth-orisation, registration and supervision than lenders’ direct-sales staff.

Member states will need to ensure that how lenders pay their staff and intermed-iaries does not restrict their ability to act in the consumer’s best interest.

The proposed scope of the directive covers both first and second- charge lending. Buy-to-let transactions undertaken on a personal basis and not through a limited company will also be caught, as will elements of bridging finance, while some interest-only mortgages could be exempt as it does not apply where they will be repaid from the sale of a property. These confusions are unhelpful.

To provide advice, advisers must consider a sufficiently big number of available products. This looks like it will limit the ability for advice to be provided on a direct basis (by lenders) as they would have to look at products from all other providers (representative of market) and advise if there is a more suit-able solution. In most other member states, advice is not provided at a direct level.

The KFI will be rep-laced by a European standardised infor-mation sheet. This must be presented to the consumer for each product sold. The UK will not be able to retain the KFI as its version of the ESIS. This will have significant costs for limited benefit but is seen as a price worth paying for improved cross-border competition.

In line with the MMR, the directive states that prior to credit being granted, an assessment of a consumer’s credit-worthiness must be conducted. It does not require verifi-cation of all income or prescribe expenditure to be considered. If the creditworthiness test is negative, no credit should be granted. However, the cons-umer has the right to ask why it was rejected or for the decision to be reviewed manually and be given the reas-ons for rejection.

As in all directives, the degree of harm-onisation (set mini-mum or obligatory maximum standards) is crucial. Due to the minimum harmonisation nature of many of the proposals, the FSA could be largely free to continue to apply their MMR plans.

Of concern is how other member states will adopt the directive. With our propensity to goldplate, this could leave UK firms at a comparative disadvantage as other EU firms with less stringent regulatory requirements are able to competitively passport into the UK market.

The AMI will con- tinue to engage as it will be essential that brokers’ interests are protected. The EU wants to promote competition and good consu-mer outcomes and an effective intermediary community is the best facilitator of that.

Robert Sinclair is director of the Association of Mortgage Intermediaries

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