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The MCOB evaders

MCOB The FSA needs to get tough with those companies that persistently ignore MCOB 3 rules, writes Nicola York

Firms are still failing to comply with MCOB 3, the financial promotions guidelines for the mortgage industry, despite having had a year to do so and some brokers feel it is time the FSA took a “heavy handed-approach” to clamp down on them.

Mortgages plc reviewed 251 mortgage adverts in April and May, of which 25 per cent were non-compliant. A further 75 promotions were reviewed in September and about 31 per cent were non-compliant.

Mortgages for Business managing director David Whittaker says this figure is worrying but it is unlikely that many firms are “deliberately flouting” the regulations. He says: “I think they would plead ignorance but there is no excuse for ignor- ance a year after the event.”

Whittaker says the FSA should fine the serial offenders to “focus their minds”. No company has been fined for a mortgage promotion or referred to enforcement although FSA spokesman David Whitely says issues have been raised with some non-compliant firms.

Mortgages Plc marketing manager Julian Wells says there is a lot of frustration in the industry because the FSA is not clamping down hard enough on companies that produce non-compliant promotions. He says: “People have been wanting the FSA to do something about it and I have personally raised the question with the regulator. The FSA have been taking action but it is very much behind the scenes.”

Whitely says: “It is not proportionate to come crashing in with enforcement action. We will take action when it is necessary and we will take action whenever we see consumer detriment.”

Mortgageforce chief executive Rob Clifford says there is an attitude of “why should I?” in the industry because some firms are seen to be getting away with non-compliant advertising. He says it is “hugely frustrating” that some firms are not complying and says he has seen non-compliant promotions appearing in local news-papers and phone directories. Clifford says: “This is a reflection of the intermediary market comprising lots of small businesses which do not have the time or money to comply.”

Mortgage plc found common errors in mortgage promotions included incorrect FSA wording, no APR displayed and no adverse-credit warnings. The main reason for non-compliance was small-print not being given due prominence.

Mortgages plc also found a few general trends in direct to consumer advertising since M-Day. The main trend was that adverts were becoming more generic and less product specific, with brand promotion being favoured. Wells says brand-led advertising has become popular because it is easier to produce compliant promotions for them than for specific products.

BM Solutions says that although early indications suggested branding would play a bigger part in advertising, companies have continued to promote specific products. Press officer Carla Lavender says: “Simple products are the most common used in consumer advertising as there is less information to present. Therefore, they are easier to communicate, ensuring that the advert is compliant without losing its original intention of attracting customers.”

MCOB 3 has presented several challenges to companies. Among these are limits to creativity, space constraints, a lessening of impact and extra costs for new artwork.

Abbey media relations executive Joe Wiggins says: “How do you cut through and get across your message and advertise your products while remaining within the framework of the regulation? It is a challenge to incorporate all of the rules but to retain the simplicity in the advertising because small print can be a bit of a turn-off for the man on the street.”

In terms of interpreting the rules, Wiggins says it is “fairly obvious” what the rules are trying to achieve. However, Clifford says the rules are open to interpretation and thinks it is easy for companies to get it slightly wrong.

He says it would be useful for the FSA to give some practical examples of compliant and non-compliant advertising – something which the regulator says it does provide on its website.

Clifford believes a vetting system would also be useful. Whitely says the logistics of this would be huge and would be “difficult and inappropriate” for the FSA to do.

Whittaker says the guidelines are “fatally flawed” because they apply a set of rules to business that are not regulated which sends a “mixed message” to the borrower.

He uses the example of buy-to-let mortgages which are not regulated products but are still required to carry a risk warning on an advertisement. Whittaker says this is misleading to consumers because it implies a degree of protection to the borrower.

He says: “We have written to the FSA and it responded by saying that the rules were non-negotiable. The most frighten- ing thing was that the FSA did not seem to understand the point.”

Whitely says: “We have recognised that some of the risk warnings do not work for all mortgages and we have granted rule modifications for firms. We recognise that this is an area that needs to be reviewed and will consult on it soon.”

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