When our prudential regulator calls out a potential conduct issue, while at the same time deferring to the conduct regulator, we should all recognise a problem is brewing!
Within the formal record of the Financial Policy Committee meetings in September and October, the Bank of England highlights its concern about the increasing length of mortgage terms. In particular, it looks at the increase in 35-year terms, highlighting the fact that such lending “will be bound by FCA responsible lending rules requiring lenders to take account of future changes to income and expenditure.”
At the same time, news feeds are reporting a high street lender increasing the maximum term on its mortgages from 35 years to 40 years. Some of the news commentary is worrying, suggesting the decision to increase the term is based on lenders only having two options to secure additional mortgage volumes: reducing charging rates or relaxing criteria. If that is the case, it seems to us that the objectives of Consumer Duty have already missed a cohort of the industry! In addition, we wonder which bit of “Our new Duty sets higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first” people have missed?
Of course, in the current economic climate there is a need for forbearance measures that help existing borrowers. Those forbearance measures should also include temporary increases in mortgage terms, where appropriate. However, increasing mortgage terms for new borrowers, and therefore, charging interest over an additional 10 or 15 years is only going to lead to regulatory action and potentially a new wave of CMC claims.
This is a real, live issue, and affects originators, servicers, or holders of mortgage portfolios. It is already time for firms to get a grip on delivering Consumer Duty in a meaningful way if they are to avoid stinging financial penalties or worse.
We are working with clients to ensure that all Consumer Duty requirements are comprehensively implemented and embedded. Our independent oversight of first- and second-line actions provides senior management with a high degree of confidence that the new consumer principle is being adhered to. Get in touch to learn how we can help you.