Recent regulatory developments of interest to financial institutions.
Contents
Mortgage switching: FCA research and occasional papers
The Financial Conduct Authority (FCA) has published research into mortgage switching and how consumers can be encouraged to seek out better deals. It has also published occasional paper 54, which looks at the characteristics of consumers who do not switch mortgages, and occasional paper 55, which considers brand loyalty in the mortgage market.
The FCA research found the factors that contribute to the decision not to switch include a lack of time, a fear of the application process and, for many, relative contentment with their current lender or deal. The consumer research also suggests that consumers could become better engaged with the switching process if given the right information at the right time.
The FCA also found that consumers that do not switch, as is the case for most mortgage borrowers, are less likely to be vulnerable compared to the general population.
Based on its research, the FCA believes that there is a case for intervening in the market to help mortgage customers who do not switch mortgages. It intends to issue a consultation paper on potential remedies in Q2 2020 and publish final rules in a policy statement by the end of 2020.
Unfair Contract Terms Directive: ECJ judgment considers plain and intelligible language and exceptions to scope
In Marc Gómez del Moral Guasch v Bankia SA (Case C‑125/18), the ECJ gives guidance on what information must be provided to a consumer about a variable interest rate (in the context of a mortgage agreement) in order to meet the plain and intelligible language test under the Unfair Contract Terms Directive (UCTD). The court also ruled on the Directive's exception for terms which reflect mandatory statutory or regulatory provisions.
Under the UCTD all written terms of consumer contracts must be "drafted in plain, intelligible language". ECJ case law has established that as well as being formally and grammatically intelligible, terms must enable a reasonably well-informed, reasonably observant and circumspect consumer to estimate, on the basis of clear, intelligible criteria, the likely total cost of a variable rate loan. In this case the ECJ stated that while it was for the Spanish court to determine whether these transparency requirements had been met, it was relevant that essential information relating to the method of calculation of the variable rate was easily accessible in a government publication and that Spanish law required all credit institutions to provide consumers with two years of historic data about the rate's fluctuations, as well as its last available value.
In addition, the ECJ held that the use of a reference rate permitted under Spanish law did not take the interest provision out of scope for the UCTD. Under the UCTD terms which reflect mandatory statutory or regulatory provisions are out of scope. However, this exemption is construed narrowly, and the fact that Spanish law controlled which reference rates could be used by credit institutions was not enough. Use of the specific reference rate was not mandatory and the rate would not apply by default, in the absence of other arrangements by the parties; it was open to the lender to specify another rate.
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