Regulation Roundup

Debt management firms under scrutiny

The Financial Conduct Authority (FCA) has carried out  research that highlights concerns regarding practices of some fee charging debt management companies.  

Between June 14 and May 15, the FCA undertook a review of fee charging and free to customer debt management companies. The focus was on compliance with consumer credit rules, including advice given to customers and treating customers fairly.

Worryingly, the standard of debt advice from some fee charging debt management firms was ‘unacceptably low’

The key findings from the research include:

• Firms failing to adequately assess customers’ financial circumstances before recommending a course of action.
• Firms not making clear the type of service they provide, and that free advice is available.
• Vulnerable customers being encouraged to purchase products and services which were not suitable and impeded their ability to repay their debts
• Information about the availability of free advice was either not provided, was not sufficiently prominent or was biased against, or derogatory about, the free advice sector.

The research highlighted that advice provided by the ‘free to customer’ debt management firms in the sample was generally of a higher standard.

FCA publish new rules regarding complaints handling for all FCA regulated firms

The new rules seek to address barriers to effective complaints handling and encourage informal and prompt resolution of complaints.

Key changes include

• Extending the ‘next business day rule’, where firms are permitted to handle complaints less formally, without sending a final response letter, to the close of three business days after the date of receipt.
• Reporting all complaints, including those handled by the close of three business days after the firm receives them.
• Raising consumer awareness of the ombudsman service, by sending a ‘summary resolution communication’ following the resolution of complaints handled by the close of the third business day after receipt.
• New rules limiting the cost of calls consumers make to firms to a maximum ‘basic rate’, including all post-contractual calls and all complaints calls.
• An improved ‘complaints return’ which requires firms to send the FCA data twice a year on the number of complaints they receive.

More information can be found on the FCA website. 

FCA publish thematic review of mortgage advice provided by lenders following implementation of Mortgage Market Review

Using mystery shopping, file reviews, on-site visits and qualitative consumer research, the FCA assessed the quality and suitability of mortgage advice provided by firms. This is inline with FCA commitment to ‘putting the customer at the heart of what they do’

Following findings were highlighted:

• Some firms delivered advice with little or no structure, meaning advisers typically failed to ensure they had sufficient understanding of customers’ needs and circumstances on which to base their recommendations.
• Some firms placed heavy reliance on completion of point-of-sale application systems, allowing little flexibility for advisers to apply judgement or adapt delivery to meet individual customers’ needs.

Overall, the FCA stated that although most customers receive suitable advice, further work is needed to improve standards. More information can be found on the FCA website. 

Acting as a guarantor can affect chances of getting a mortgage

The July edition Mortgage Strategy has highlighted the dangers of acting as a guarantor for friend or family seeking a ‘guarantor loan’.

Guarantor loans are aimed at borrowers with poor credit histories and tend to range between £1,000 and £7,500 and can have interest rates around 50%.

Acting as guarantor may affect a persons ability to pass a lenders affordability test for a mortgage and therefore not qualify for a mortgage. Furthermore Ray Boulger, senior technical manager at John Charcol highlighted that borrowers with a mortgages could effectively become mortgage prisoners as acting as a guarantor for such loans could even impact a borrowers ability to remortgage and they could end 'stuck on the standard variable rate.”