Recent regulatory developments of interest to financial institutions with focus on consumer finance
- Mortgages: FCA CP20/13 on intra-group switching and certain mortgages
- Mortgages: FCA statement on mortgage prisoners
- Motor finance discretionary commission models and consumer credit commission disclosure: FCA PS20/8
- COVID-19: FCA call for input on ongoing support for mortgage and consumer credit customers
Mortgages: FCA CP20/13 on intra-group switching and certain mortgages
The UK Financial Conduct Authority (FCA) has published a consultation paper, CP20/13, setting out proposals designed to support certain consumers within the mortgage market. In CP20/13, the FCA consults on two proposed interventions to help two different groups of mortgage borrowers:
- to make rules that will make it easier for lenders to offer switching options to consumers who are in a closed book within the same financial group as the lender. This would mirror the flexibility that active lenders have, under the FCA's existing rules, when their existing customers wish to switch; and
- to issue guidance stating that firms should allow borrowers to delay repayment of the capital at maturity on interest-only and part-and-part mortgages up to 31 October 2021. This is provided borrowers are up-to-date with payments and they continue to make interest payments.
Comments can be made on CP20/13 until 8 September 2020. The FCA intends to publish final rules and guidance in a policy statement in Q3 2020. The proposed rule changes on intra-group switching will come into effect immediately after the policy statement is published. If the FCA proceeds with the proposed guidance on maturing interest-only and part-and-part mortgages, this will come into effect on 31 October 2020.
Mortgages: FCA statement on mortgage prisoners
The FCA has published a statement explaining the work the FCA has carried out to explore what further interventions may help mortgage prisoners.
The FCA recognises the challenges faced by mortgage prisoners and the impact of COVID-19. It defines mortgage prisoners as being borrowers who are up to date with payments, but who are unable to switch to a new mortgage deal and, depending on their loan and borrower risk characteristics, are potentially paying more than they need to.
It also highlights the FCA's latest consultation paper, CP20/13, reported above.
Other points of interest in the FCA's statement include the following:
- the FCA expects to consult in winter 2020 on potential remedies to help borrowers who are with inactive firms and able to switch, but are not switching mortgages;
- the FCA is working with the Money and Pensions Service to provide further support for borrowers with inactive firms who may be struggling financially. Together they are creating specific online information and a dedicated phone line as a key source of information and advice; and
- some stakeholders have raised concerns that the mortgage regulatory perimeter could affect the fair treatment of borrowers whose mortgages are owned by an unregulated entity. At this stage, the FCA does not believe that a change to the perimeter would solve all the concerns that mortgage prisoners have. However, it will continue to monitor this issue. Chapter 8 of the statement sets out the FCA's analysis relating to this issue.
Motor finance discretionary commission models and consumer credit commission disclosure: FCA PS20/8
The FCA has published a policy statement, PS20/8, and final rules on motor finance discretionary commission models and consumer credit commission disclosure. The FCA is banning commission models that give motor finance brokers and dealers an incentive to raise customers' finance costs. The ban follows FCA concerns over the widespread use of commission models linking the broker's commission to the customer's interest rate under the finance agreement and allowing brokers wide discretion to set or adjust that rate. This creates a potential conflict of interest.
The FCA is also changing some of its rules to make sure credit brokers give consumers more relevant information about commission. These changes apply across all credit sectors.
The FCA consulted on the rules in CP19/28. PS20/8 summarises the feedback the FCA received to CP19/28 and its response to it. The FCA has made some technical changes to the draft rules consulted on, but is going ahead with its proposals largely as planned.
Read more in our briefing: Consumer credit broker commission: Motor finance discretionary models out, disclosure rules amended.
The new rules will come into force on 28 January 2021.
COVID-19: FCA call for input on ongoing support for mortgage and consumer credit customers
On 31 July 2020, the FCA published a call for input on ongoing support for consumers affected by the COVID-19 pandemic in respect of mortgages and consumer credit. The FCA explains that its payment deferral guidance remains in effect and continues to provide temporary support until 31 October 2020, which means that consumers who have not yet had a payment deferral, or who need further support at the end of an initial payment deferral, can request a deferral of up to 3 months until that time. However, it is aware that many consumers who have benefitted from second payment deferrals under its temporary guidance will have payment deferrals that end from September 2020 onwards.
The FCA wants to ensure that all consumers who need it get appropriate and sustainable support when their current temporary arrangements end. It also wants to gather views on whether and under what circumstances any aspect of its current guidance should continue beyond 31 October 2020 and, if not, what, if anything, should take its place.
Where consumers are unable to resume payments once their current temporary arrangements end, the FCA is looking for the following outcomes:
- consumers get appropriate forbearance that is in their interests;
- consumers receive a consistent level of treatment and good outcomes, whoever their lender is;
- firms have the systems and processes to provide their customers with the help they need;
- firms recognise vulnerability and respond to vulnerable consumers' needs; and
- consumers receive the support they need in managing their finances.
The deadline for responses is 7 August 2020. If the FCA determines that further guidance is needed in respect of mortgages, it will publish draft guidance in late August, followed by final guidance in early September 2020. If it concludes that it should provide further guidance in respect of consumer credit, it will publish draft guidance in mid-September, followed by final guidance in late September 2020.