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Will FSA feel the collar of the ‘rule-breakers’?

Since October 31 last year, the words “clear fair and not misleading” have been echoing down the corridors of that marketing departments of mortgage firms and lenders, leaving them striving to make sure their promotions and marketing are compliant.

But despite the FSA’s pledge to crack down on illegal mortgage brokers and making a priority of seeking out those not abiding by the financial promotion rules, many are concerned that the regulator is not doing enough to ensure everyone is on the same level playing field.

The FSA has pledged to look specifically at mortgage and equity-release financial promotions as they are potential areas where rules are still not being followed. In its campaign so far, the FSA has reviewed 30 websites, 20 radio and TV promotions, 50 direct-mail promotions and 30 branch leaflets.

Purely Mortgage chief executive Mark Chilton says it is encouraging that the FSA is taking its role of regulating the industry seriously. He says: “Anecdotally, we believe that over 50 per cent of customers use the internet as a source of mortgage information but I would say that around 90 per cent of all online mortgage advertising is non-compliant. If the FSA clamped down here, they would rapidly uncover further unauthorised sales rather than waiting for us in the industry to complain.”

There are, of course, many firms which have taken the advent of mortgage regulation and the promotion rules very seriously. A well known promotion change just days before M-Day regulation was self-imposed by Alexander Hall, the London mortgage broker firm. It had marketed itself as offering free independent advice but this contravened FSA regulations which require brokers to offer consumers a fee option to remain independent. This called for a complete brand revamp, changes to the firm’s marketing materials and alterations to its website.

The sheer scope of those firms which are not sticking to the rules is easily identified. Just type into an internet search engine the words “FSA” and “Mortgage Code Compliance Board” and a staggering number of mortgage firms’ websites claim they are members of both organisations yet the MCCB was dissolved last year when the FSA took over regulation of the mortgage market.

For example, My Personal Finance, which is an appointed representative of Accord Consulting, says on its home page that it is authorised and regulated by the FSA but its sub-section on mortgages says: “As mortgages are not regulated by the Financial Services Act of 1986, the MCCB introduced a voluntary code of conduct on 1st May 1998 to which we fully subscribe.”

This could cause a client a lot of confusion if they have any cause to make a complaint or seek advice on mortgages and regulation. My Personal Finance was unavailable for comment.

But it is not only some mortgage firms and intermediaries which are guilty of contravening the rules as it seems that many lenders too are breaching the rules as well.

Charcol senior technical manager Ray Boulger says a worrying factor has been the often inconspicuous placing of the collar on discount mortgages. The cap and the collar rates are the maximum and minimum pay rates on payments, helping to keep the mortgage rate within a set margin.

Boulger says: “The collar is often played down too much. In the spirit of treating customers fairly, if there is a collar, it should be just as prominent as the interest rate.” Both Halifax and First Active have been pointed out as two lenders which do not fulfil what Boulger believes is non-compliant advertising.

First Active disagrees with Boulger’s interpretation and says it is comfortable that the collars on its discount mortgages are as prominent as required by the FSA.

Halifax senior media relations manager Paul Fincham says: “We believe that all our advertising clearly complies. We are very clear within all product-related literature, from KFIs throughout about special conditions attached to certain mortgages and these are very prominent on the KFIs. There is only so much that you can get into an advertisement. That is where the sales process picks it up.”

Boulger also believes that the end dates of fixed-rate periods are often misleading.

Crowley Thompson and Co communications manager Jonathan Seward echoes these concerns. He says: “One of our advisers was concerned that several lenders, and we are talking about those in the top 10, are not entirely clear on the end dates. Often, the first date of the month is that quoted on the KFI but it should be the last date of the month before. Although this has not necessarily caused any problems,all things need to be clear in the new regime, no matter how insignificant they may seem at first.”

Chilton is concerned that the regulator is not being as proactive as it should be. He says: “Too much of the FSA’s proposed proactive stance is reliant on whistleblowers to expose bad practice.”

FSA spokesman Robin Gordon-Walker says: “When members of the public make complaints, our enforcement division will look at them. We welcome any comments on advertising but, as we have recently stated, a number of enforcement actions have already taken place.”

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