30Sep

Which? makes super complaint regarding protection given to victims of bank fraud

Consumer organization Which? has made a super-complaint to a financial regulator for the first time, as it seeks better protection for victims of bank fraud.

At present, consumers have no legal right to any form of compensation if they are tricked into transferring funds from their bank account to that of a fraudster or scammer. Victims are thus left hoping that their bank voluntarily takes remedial action, but in many cases banks take the view that if a customer authorised a transfer of funds then that is the end of the matter.

Seeking to change this, Which? has submitted a super-complaint to the Payment Systems Regulator (PSR), which is the economic regulator for the £75 trillion payment systems industry in the UK. The PSR is technically a division of the Financial Conduct Authority (FCA), although it operates independently. Which? has also notified the FCA of its super-complaint. The organisations now have 90 days to respond.

Which? has firstly asked that the PSR carries out an investigation to ascertain the scale of the problem, and to gauge just how much UK consumers are losing to bank fraud. In addition, it wishes to see the introduction of new rules in this area, and the introduction of greater legal liability for the banks when their customers fall victim to fraud. It notes that banks already reimburse customers if they are the victim of a scam involving a direct debit, credit or debit cards, or fraudulent activity on their account. The organisation adds that its research indicates 60% of people do not realise they have no legal protection should they be the subject of a transfer fraud.

Which? suggests two possible remedies. Under Option A, banks would be required to reimburse any victim of transfer fraud, except where the customer themselves acted fraudulently, or with gross negligence. Under Option B, banks would be required to meet more stringent standards for risk management, and would be required to reimburse victims where these standards had not been met.

Director of Policy and Campaigns at Which?, Alex Neill, said:

“We all now regularly use bank transfers to pay for things, but what most of us don’t realise is that if you’re conned into paying out money to a fraudster, you stand to lose all of your money, unlike when you use your credit or debit card.
“With scams on the rise, consumers can only protect themselves so far, and we believe that banks must do more to tackle bank-transfer fraud and safeguard their customers from scams.”

Christopher Woolard, Director of Strategy and Competition at the FCA, acknowledged receipt of the super-complaint by saying:
“We know that fraudsters can use sophisticated tactics, including phishing and vishing, to dupe even the most financially aware consumers. We will work together with the PSR as they investigate this super-complaint.”
Katy Worobec, director of Financial Fraud Action UK, summed up many of the issues associated with bank transfers at present. Firstly, she highlighted the measures banks already take to try and prevent fraud, by saying:
“Banks take fraud extremely seriously and use advanced security systems which last year stopped £8 in £10 of attempted remote banking fraud.”
However, she acknowledged that the current arrangement did not fully protect customers, by adding:
“Banks are legally obligated to fulfil a customer’s request to transfer money even if they have warned the customer they are at risk of a potential scam.
“A blanket approach [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][to compensating all transfer fraud victims] is equivalent to asking an insurance policy to pay out for theft when the front door was left wide open.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

28Sep

FCA director speaks on subject of cyber security

Nausicaa Delfas, Director of Specialist Supervision at the Financial Conduct Authority (FCA), has warned that even the smallest financial services firms must take the subject of cyber security seriously.

Speaking at the Financial Times Cyber Security Summit, she revealed that the number of ransomware attacks rose by 35% in just one year between 2014 and 2015. The number of cyber-attacks of all types being reported to the FCA by authorised firms is also rising alarmingly, from just five in 2014 to 27 in 2015 and to 75 in 2016 to date.

Ransomware is where a virus or other malware is installed on a victim’s computer, and where the attacker then demands a ransom payment to restore the systems to full operation.

Regarding ransomware attacks, Jake Williams, the founder of cybersecurity firm Rendition Infosec, commented that “these guys are crazy sophisticated,” and Ms Delfas referred to his remarks in her speech.

The FCA continues to work with organisations such as GCHQ, the Government, the Bank of England and the Prudential Regulation Authority to fight cybercrime, but a large proportion of Ms Delfas’ speech was devoted to what the regulator expects authorised firms to do in this area.

According to the FCA director, firms need to take note of the following:

• Firms need to have a ‘security culture’ – everyone from the board to senior management to supervisors and ordinary employees must take the issue of cyber security seriously
• Firms should have ‘good governance’ relating to cyber security – senior management must take responsibility for security in their business function, and boards of directors must challenge management to verify that appropriate arrangements are in place
• Firms must identify what their key assets are, and how they might protect these
• All staff need to be trained to recognise suspicious activity, such as phishing emails
• Staff with access to important data should be security screened
• Firms need to have adequate detection capabilities, so that they know straight away if they have been attacked
• Firms must have effective recovery and response procedures in the form of a detailed business continuity plan, which explains what they will do in the event of a security breach to ensure business operations can continue
• Firms need to test their data security measures on a regular basis
• Significant data breaches must be reported to the FCA, as part of firms’ Principle 11 obligations to disclose to the regulators anything of which they would reasonably expect notice

Ms Delfas concluded by saying that “cyber is a threat that is ever evolving and ever increasing.”

She added a further observation, by saying:

“Most attacks you have read about were caused by basic failings – you can trace the majority back to: poor perimeter defences, unpatched, or end-of-life systems, or just a plain lack of security awareness within an organisation. So we strongly encourage firms to evolve and instil within them a holistic ‘security culture’ – covering not just technology, but people and processes too.

“You can expect to hear more from us on cyber resilience. We will be reaching out to a much wider range of firms than we have to date, and focussing on those in which a successful attack might pose the greatest risk to our objectives. We will be looking closely at the cyber practices of these firms.”

The security breaches at the largest firms, such that at as telecoms company TalkTalk, inevitably attract the greatest publicity, but no firm of any size can afford to neglect this issue, as the consequences of an attack could be serious. For example, even the smallest financial advisory firm may hold the records of several thousand clients.

Any firm unsure as to what they need to do regarding cyber security is advised to seek professional advice.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

26Sep

Payday lender to pay £34 million redress after FCA intervention

Payday lending firm CFO Lending is to pay £34.8 million in compensation after the intervention of the regulator, the Financial Conduct Authority (FCA). The firm was responsible for a number of serious failings in a number of areas.

£31.9 million of the compensation will be given in the form of write-offs of outstanding balances, and only £2.9 million will be in the form of cash payments. Some 97,000 customers are affected.

CFO, which also offered a number of guarantor loans alongside its main payday loan business, used the trading names Payday First, Flexible First, Money Resolve, Paycfo, Payday Advance and Payday Credit.

The many and varied issues identified at CFO by the FCA included:

• Computer systems showing incorrect loan balances, leading to customers making larger repayments than they should have
• Taking repayments without the customers’ permission
• Using continuous payment authority to collect outstanding payments even where it had reason to believe that the customers concerned were in financial difficulty
• Failing to engage properly with customers experiencing repayment problems, such as refusing reasonable repayment plans suggested by customers
• Sending threatening and misleading letters, texts and emails to customers
• Giving inaccurate customer information to credit reference agencies
• Carrying out inadequate affordability assessments for guarantor loans

The FCA identified issues with the firm in August 2014, and took action at this time to stop CFO collecting outstanding debts. After the completion of an independent review in February 2016 the FCA renewed the firm’s permission to collect its existing debts, but did not re-authorise it to offer any new loans.

The firm has since entered administration, but is expected to be in a position to pay the compensation in full.

Jonathan Davidson, Director of Supervision – Retail and Authorisations at the FCA, said:

“We discovered that CFO Lending was treating its customers unfairly and we made sure that they immediately stopped their unfair practices. Since then we have worked closely with CFO Lending, and are now satisfied with their progress and the way that they have addressed their previous mistakes.

“Part of addressing these mistakes is making sure they put things right for their customers with a redress programme. CFO Lending customers do not need to take any action as the firm will contact all affected customers by March 2017.”

The amount of compensation to be paid is one of the largest redress orders for a payday lender since the FCA took over as consumer credit regulator. The sum to be paid is larger for example than the £15.4 million paid by Dollar Financial to some 147,000 customers in October 2015. The fact that CFO, as a much smaller firm, has been hit with a larger penalty illustrates just how serious their misconduct was.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

23Sep

Government to launch crackdown on white collar crime

The Government has unveiled proposals that could see company directors prosecuted if their firms commit fraud, even if the criminal activity is perpetrated by a rogue member of staff without the knowledge of senior management. Custodial sentences may be handed down in serious cases. It all comes as part of a proposed crackdown on ‘white collar crime’.

The Criminal Finance Bill would make company boards liable for cases of money laundering, false accounting and fraud – at present they can only be held responsible for instances of bribery.

Investopedia defines ‘white collar crime’ as “a non-violent crime committed for financial gain.”

It goes on to say that “securities fraud, embezzlement, corporate fraud and money laundering are examples of white-collar crime.”

Prime Minister Theresa May MP is reported in the press as being the main driver of the Government proposals. The topic has always been of interest to Mrs May, who was instrumental in setting up the new National Crime Agency in 2011 when she was Home Secretary. At the time, Mrs May said:

“A lot of people feel that there hasn’t been enough emphasis on what one [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][might] call middle-level, financial fraud.”

The Attorney General, Jeremy Wright, who provides legal advice to the Government, said:

“The threat of economic crime and its impact is too great not to act. It threatens prosperity and the rule of law and public confidence in our ability to uphold these values.

“When considering the question ‘where does the buck stop?’ and who is responsible for economic crime, it is clear that the answer is to be found at every level, from the boardroom down.”

Barry Vitou, a prominent fraud lawyer, commented:

“The present regime makes it practically impossible to hold corporate boards to account for corporate misconduct because evidence of that misconduct must be found at the highest level. In practice, the evidence trail usually dries much lower down the corporate tree.

“There is no responsibility for the damage caused by failing to prevent economic crime.”

Financial services firms should be used to the idea of individual accountability. In some ways this is merely an extension of what will happen across financial services from 2018, when all firms will be subject to the Senior Managers & Certification Regime. This Regime requires managers to ensure procedures are being complied with correctly in their business area. If there is an issue in a particular area of the firm, the relevant senior manager for that area could be accountable to the regulator, the Financial Conduct Authority, for that failing.

The Government is also proposing new requirements regarding employees’ representation on company boards, and regarding remuneration policies. Only days before she became PM, Mrs May said:

“We’re going to have not just consumers represented on company boards, but workers as well.”

A consultation document on the proposals is expected to be issued shortly.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

23Sep

Debt manager and car finance broker both fined by ICO for nuisance marketing texts

A debt management firm and a well-known car finance brokerage firm were both fined by the Information Commissioner’s Office (ICO) in September 2016 for sending unsolicited marketing texts.

West London-based Vincent Bond Ltd was fined £40,000 after it sent 346,162 text messages between May and December 2015 to advertise its debt management services. 147 complaints about the firm’s activities were made to data protection watchdog the ICO, and when investigated, the firm was unable to demonstrate that all recipients had given prior consent to receiving this type of communication.

In setting the level of penalty, the ICO acknowledges that “Vincent Bond has taken substantial remedial action” since its breaches of the law.

ICO enforcement manager Andy Curry said:
“Vincent Bond Ltd was responsible for ensuring its text messages were being sent to people who had agreed to receive them.

“It failed to do this and instead, caused frustration, anger and upset. Unwanted texts are an intrusion on people’s lives and it is right that we take action to stop them. And we have.

“When people complain to us they need to know that it counts. The intelligence they give us helps us trace the unwanted calls or messages to source and gives us a better chance of stopping the nuisance.”

Manchester-based firm Carfinance247 Ltd was fined £30,000 after it sent 65,000 texts between August and December 2015 and 912 complaints were received.

Like so many recent recipients of ICO fines, the firm attempted to pass the blame onto a third party, but the rules regarding this are unambiguous. If an authorised financial services firm engages another firm to conduct marketing activities on its behalf, then the authorised firm will be held responsible for the actions of the third party.

In any case, the third party firm claimed that “Carfinance 247 Limited were fully aware of their marketing strategies and its use of text messages.”

Steve Eckersley, the ICO’s head of enforcement said:
“Carfinance247 Ltd tried to hide behind another company and distance themselves from the marketing practices involved.

“Let me be clear – if your business has hired someone else to provide direct marketing then the responsibility for the campaign is yours. There is nowhere to hide. If you break the rules we will find you and fine you.”

These fines will be reduced to £36,000 and £24,000 respectively if the firms concerned do not appeal and pay the penalty early.

Data protection law, in the form of section 22 of the European Union’s Privacy and Electronic Communications Regulations 2003, requires firms to obtain the explicit consent of all recipients prior to sending them marketing texts. Including an option to reply and opt out of future marketing texts is not sufficient to comply with the law. Firms should also expect similar provisions to remain in force once the UK completes its exit from the European Union.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

21Sep

FCA issues update on its activities regarding the UK’s ageing population

In September 2016, the Financial Conduct Authority (FCA) published an update into its work regarding how to address issues related to the rise in the number of older people in UK society.

The key questions the regulator wishes to address are:

• What happens as the mind ages, and what does this mean in terms of products, services and distribution?
• Is there more that can be done to help consumers navigate markets where upper age limits exist?
• How can firms help consumers to better engage with products and services in retail banking?
• How can we work with our stakeholders to support those who require third party access?
• How can the FCA build on existing industry initiatives to facilitate mortgage lending to older consumers?
• Can older people and their families access regulated advice for long term care?

The FCA acknowledges that older customers may have different financial needs, saying that it recognises that they “are currently more likely than younger consumers to be asset-rich and cash-poor.”

Some of the specific topics then addressed by the FCA update include:

• Pensions – the FCA recognises that the market is still adapting to the recently introduced pension freedoms, and that it is looking at how it can ensure older customers are treated fairly, and at how effective competition can be facilitated
• Advice and guidance – here the FCA notes that consultation is taking place into a new guidance regime that will replace the existing Money Advice Service. It suggests there is a need to improve basic financial capability and budgeting skills amongst older people
• Mortgages – the FCA has promised to look closely at the subject of mortgage lending to older people over the next year. There have been a number of press reports regarding lenders refusing to lend if the mortgage term would run past age 65
• Vulnerability – the FCA says it will work with other parties, such as trade bodies, to consider whether more can be done as regards the issue of fair treatment of vulnerable consumers. The regulator recognises that not all older people are vulnerable, and that not all vulnerable customers are elderly, but does note that older people are more likely to experience vulnerability issues around mobility or dexterity
• Scams and fraud – the regulator acknowledges that older people are more likely to fall victim to fraud. It remarks that it has already reached over 3 million consumers via its ScamSmart campaign, and adds that it will continue to work with law enforcement agencies and other relevant bodies to improve consumer awareness of scammers’ tactics

The FCA will launch a formal Ageing Population Strategy in Summer 2017. Ahead of this, it will conduct bilateral meetings and roundtables with interested stakeholders on key issues.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

19Sep

Government confirms pensions dashboard to launch next March

The Government has confirmed it is to launch a prototype of its Pensions Dashboard in March 2017, and that it intends to have the Dashboard fully operational by 2019. The initiative is designed to allow consumers to view details of all of their retirement savings in one place, and research has suggested that some people have around a dozen different pension pots by the time they retire, simply because of the number of different companies they have worked for. Some consumers have reported being unaware they had some of these ‘pots’ simply because their retirement savings had become so complex.

The Government also believes that highlighting the existence of all of these pension pots could prompt more people to seek guidance and/or professional financial advice.

11 of the largest pension providers – Aviva, Aon, HSBC, LV=, NEST, Now: Pensions, The People’s Pension, Royal London, Standard Life, Zurich and Willis Towers Watson – have agreed to participate in the project.

The Economic Secretary to the Treasury, Simon Kirby MP, said:

“Pensions and savings decisions are some of the most important a person will make during their lifetime. The government is determined to make sure people can access the information they need to plan effectively for their future.

“Technology, like mobile phone apps, has made day to day banking easier than it’s ever been and it is time for pensions to catch up. Think of a future where you can compare your pension pots with the touch of a button.

“The Pensions Dashboard will unlock a huge amount of information that will help people make the best choices for them and I am delighted that eleven of the largest pension providers have agreed to work together to build a working prototype by March 2017.

Aviva’s Chief Digital Officer, Andrew Brem, said:

“The Pensions Dashboard is a vital tool in increasing engagement with savings and I’m really pleased that we are working on the pilot.

“As an industry we need to make it as easy as possible for people to get a view of all their retirement savings in one place to help them take control of their future.”

CEO of the People’s Pension – one of the main providers of occupational pension schemes – Patrick Heath-Lay, said:

“The Pensions Dashboard has the opportunity to change the way the we do pensions, delivering an infrastructure that has the potential to allow people the opportunity to see all their pensions in one place whilst driving greater efficiency within the pensions system. But it must be built first and foremost for savers and have strong, independent, ownership and governance.

“It is great that the government and industry are working together to make this a reality. It is crucial that we all make the most of this opportunity and the industry as a whole embraces the dashboard.”

Addressing a conference at which the Dashboard was being launched, Mr Kirby said that it was time the pensions sector caught up with the types of technological advances demonstrated by mobile banking applications and comparison sites.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

16Sep

Payday lenders fare badly in latest FOS figures

The latest complaints figures from the Financial Ombudsman Service (FOS) indicate both that more complaints are being made about payday lenders and that a large proportion of payday lending complaints are being upheld.

The FOS, the independent complaints adjudicator, reported that it received 4,186 complaints about payday lending in the first half of 2016, which is more than double the equivalent figure for the last six months of 2015.

Payday lenders are also not doing well when it comes to the final decisions the FOS makes on their complaints. The organisation upheld 48% of all the complaints it closed in the first half of the year, but this figure rises to 53% when only payday loan complaints are considered. Furthermore, some payday lenders had even higher uphold rates, for example 72% of complaints concerning WDFC UK Limited (better known as Wonga) were upheld, as were 61% of those concerning CashEuroNet UK LLC, which trades as Quick Quid and Pounds to Pocket.

In total, the FOS received 169,132 new complaints between January and June 2016, an increase of 3% when compared to the previous six months. Complaints about payment protection insurance (PPI) were once again down, if only slightly, at 91,381 (compared to 92,667 in the previous period).

PPI complaints continue to account for the majority of the FOS’s workload, with this product being the subject of 54% of the complaints. However, non-PPI complaints increased by 8%.

Lloyds Bank had the most complaints during the first half of the year, with 22,241. Bank of Scotland, also part of Lloyds Banking Group, was only a little way behind on 22,090. Barclays received 18,603 complaints and HSBC was fourth with 11,082.

FOS chief ombudsman Caroline Wayman said:

“The data we have published about complaints over the last decade or so helps to illustrate a period that’s been challenging and volatile for many financial businesses. But the current signs are that complaints are now broadly levelling off and moving onto a more even keel.

“Although it’s a few years now since PPI complaints peaked, we have been receiving over 3,000 cases a week for six years running – despite wider expectations that numbers would fall. And we’re continuing to deal with the issues and uncertainties around PPI which remain a significant challenge for everyone involved.

“Lots of factors can influence the complaints we see, from more people knowing more about their rights when things go wrong to external factors like volatility in the stock market or extreme weather conditions. That’s why I believe it’s important that we continue to share our insights into complaints to help businesses to avoid the mistakes of the past.”

The Consumer Finance Association, a trade association that represents a number of payday lenders, chose to concentrate on the results of a recent survey rather than on the FOS figures. Chief executive Russell Hamblin-Boone commented:

“We are obviously disappointed with the number of complaints, but this must be viewed in perspective. Of around a million loans funded there were about 2,000 upheld complaints.

“The true picture is represented by a recent customer satisfaction survey by Smart Money People, which showed that 95% of short-term credit customers felt they were treated fairly against an average of 88% of all credit customers.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

14Sep

FCA sets out plans for secondary annuity market

The Financial Conduct Authority (FCA) has opened a consultation into the way the Pension Wise guidance service will approach the impending extension of the Government’s retirement freedoms. From April 2017, people already in receipt of an annuity will be able to sell their policy in exchange for a cash sum.

As with the existing Pension Wise guidance given to over 55s wishing to access their retirement savings, the guidance given to existing annuity holders should be “impartial, consistent and of good quality across the range of delivery channels”, and should “create consumer trust and confidence in the designated guidance providers and in the content of the guidance.”

Staff giving Pension Wise guidance will need to understand:

• The options for selling annuity income, and how a consumer should go about doing this should they decide this is their best option
• How the annuity market operates in general
• How to assess whether the amount a consumer is offered for their annuity is good value, and what the impact of fees and charges is in this area
• The tax implications of cashing in an annuity
• When there will be a requirement to direct a consumer to sources of professional financial advice – it is expected that there will be a minimum annuity value above which professional advice must be sought before selling, however the level of this threshold has yet to be determined
• The risks associated with selling an annuity
• The impact issues such as long term care needs, sustainability of income throughout retirement, life expectancy and eligibility for means tested benefits would have on any decision to sell an annuity
• How to deal with vulnerable customers, such as those with mental capacity limitations

The FCA will once again be required to monitor the quality of the service being provided by the Pension Wise delivery partners, which at present are Citizens Advice and The Pensions Advisory Service.

Of course the financial advisory sector will continue to present itself as an attractive alternative to the Government’s free guidance service. Once the new annuity freedoms are in force, the UK’s financial advisers will face additional challenges when deciding what option to recommend to their older clients. The generally accepted view at present is that most annuity holders should be advised to remain with their existing arrangement. With this in mind, brokerage firm Hargreaves Lansdown has said it will not be participating in the secondary annuity market, and has called for consumers to be prevented from cashing in an annuity unless they seek guidance or professional advice first.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said:

“For anyone not paying for advice before selling an annuity, a consultation with Pension Wise should be mandatory. The particular risks in this market are such that an independent sense-check from either a qualified adviser or from Pension Wise is a small inconvenience for the small number of investors who are likely to go ahead with such a transaction.”

The consultation closes on October 4 2016, and final rules and guidance are expected to be published before the end of the year.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

12Sep

FCA publishes key findings of financially vulnerable customers’ thematic review

Although the Bank of England recently cut the base interest rate, the Financial Conduct Authority (FCA) has decided to press ahead with an initiative designed to ensure mortgage lenders treat customers who may be vulnerable to a rate rise in a fair manner. Lenders are then expected to put in place a strategy to assist these vulnerable customers – and firms need to note that customers do not necessarily need to be in arrears at present in order to be at risk of struggling to make repayments were a rate rise to occur.

For more than two years now, FCA rules have required lenders to assess not just whether applicants can afford the mortgage repayments at current interest rates, but also whether they could still maintain repayments were rates to rise significantly.

With this in mind the FCA has reviewed the practices surrounding vulnerable customers at nine firms, which include retail banks, building societies and non-deposit taking lenders.

The FCA notes that the nine firms are not all at the same stage when it comes to their ongoing development of such practices and procedures. It comments that “few firms would be able to implement strategies if interest rates were to rise in the near future.”

Examples of good practice in this area includes:

• Surveying existing borrowers to ascertain whether they understand the type of mortgage they hold, and appreciate what the impact of a rate rise on their financial circumstances could be
• Making it easier for customers to switch to alternative mortgage arrangements where the impact of a rate rise may be less severe. The example the FCA gives is of one firm who have removed loan-to-value limits for product transfers
• Training staff on how to identify signs of financial difficulty amongst customers, and on when such customers should receive specialist help
• Giving customers access to online mortgage calculators so they can see for themselves the impact a rate rise could have
• Writing to customers explaining the impact of a rate rise on their monthly payment, and encouraging them to take steps to prepare for a possible increase
• Working with debt advice agencies to communicate with affected customers

The regulator also comments that some firms have incorrectly excluded from their strategy both fixed rate mortgage customers and customers already in arrears. As regards the former, lenders need to be mindful of the fact that a fixed rate deal rarely runs for the entire term of the mortgage.

Lenders are urged to ensure both that they obtain management information on this subject on a regular basis, and that the effectiveness of this information is reviewed regularly.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

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