As the consultation period for the FSA's mortgage regulation paper CP186 draws to a close this week, the Association of Mortgage Intermediaries has voiced its concern over a plan that would oblige intermediaries to conduct fact-finds before they can offer rate quotes over the phone.
The FSA is proposing that intermediaries should conduct suitability assessments – effectively a fact-find – before offering quotes over the phone to consumers.
Brokers get a lot of rate enquiry calls each day and since it is a quick, simple service which the public are accustomed to using, piling on a fact-find would hit intermediaries.
AMI chairman and TQ Mortgage Service director Charles Gooding considers that if the FSA insists on the suitability assessments at what is usually the first contact an intermediary has with a client, it would seriously affect the industry's ability to operate. “It would increase not only the length of time following dead leads, it would also drastically increase paperwork and subsequently the cost to the consumer,” he says.
But the FSA maintains that the suitability assessment is nowhere near as complex as an investment-style fact-find.
An FSA spokesman explains the procedure: “The suitability assessments are three-stage processes, only involving identifying appropriate products for the needs and circumstances of the consumer. When intermediaries make recommendations, they need to be able to keep records of what they have recommended.”
The FSA believes if a customer asks for advice, this should automatically trigger the need for a suitability assessment, which would necessitate a key facts' illustration.
The FSA spokesman says: “As long as the intermediary is not giving advice on a particular mortgage contract, then they do not need to do the suitability assessment. But the caveat is that they can only do this orally. Submitting an application would trigger a KFI. This is part of our responsible lending rule which maintains that even if there is a non-advice sale, the intermediary still needs to take considerable accountability.”
But Mortgage Watchdog managing director Monty Burn is astounded that the idea has been put forward. He says most intermediaries would receive a lot of these types of casual phone calls. Dealing with them under the proposed regime would be unmanageably time-consuming.
He says: “It is ridiculous.A fact-find can take 15 to 20 minutes of probing. It is ludicrous to think that if a consumer just wanted to phone up on impulse and get mortgage information, intermediaries would need to go through this long process.”
Under the present mortgage code, a fact-find is not mandatory at any stage. Burn says there are places where he supports the introduction of a fact-find but the cold-call stage is not one of them.
He believes the concept is highly impractical and cannot see how it could be helpful to either providers and intermediaries or consumers. The public will be put off because of the length and probing of the call at such an early contact point, damaging the reputation and effectiveness of the industry.
Burns says the rule would be detrimental to consumers. He says if the FSA is serious about the proposal, it should get consumer groups involved.
“I am sure that consumer groups would find the proposal equally ineffectual. The FSA has clearly not taken any guidance from practitioners and has made it clear again that it is not intimate with the mechanics of the business of intermediaries,” he says.
Other industry players also have concerns. Savills Private Finance director Simon Jones understands the spirit of the FSA's stance but thinks it is a halfway solution that will not have any positive effect.
He says: “If the FSA is looking at the issues surrounding quick quotes, it needs to go the whole way rather than a situation which effectively means advice and offers are given based on half the information and a little knowledge. Where can a proposal like this go?” GMAC-RFC believes that the FSA needs to give greater definition on its regulations over quick quotes. Company spokeswoman Christine O'Grady says: “We have concerns that this may not be used in the manner intended by the FSA, because of its length. We would still like to see a prescribed quick quote which we believe would be of greater assistance in the shopping-around process.”
AMI chairman Charles Gooding believes the existing system of compliance for relatively simple information transactions such as quick quotes should be sufficient as long as the process is not perceived as a sales process or as advice.
He says: “If a consumer looks to be exploring products further after a quick quote has been given, then this would be the point where fact-finds could be warranted but not at the initial contact.”