31Oct

The Financial Conduct Authority (FCA) has provided an update for customers of a former mortgage and insurance intermediary which remains authorised by the FCA but is no longer trading. The firm in question is now in negotiations with insolvency practitioners.

The FCA previously instructed the Altrincham-based firm to conduct a customer contact and redress programme, after it was found that a number of its customers received unsuitable mortgage advice. The firm is also said to have mis-sold payment protection insurance in a number of cases.

Although the FCA says it is consulting with the Financial Ombudsman Service (FOS) over the matter, the regulator now advises customers with complaints against the firm to contact the Financial Services Compensation Scheme (FSCS), and not to go to the FOS at the present time, seemingly a recognition of the fact that the firm will no longer be able to settle claims made against it.

In the first half of 2018, 50 complaints were made about the firm, the second highest for a non-lender firm in the mortgage sector. The firm’s uphold rate during this period was as high as 95%.

In May 2017, the FCA announced a redress scheme was to be launched, after it became concerned about the firm’s sale of debt consolidation mortgages. The extent of the detriment suffered by clients could have been significant, as the programme covers sales made over a period of seven-and-a-half years, from January 2007 to July 2014.

Specifically, the regulator’s intervention concerns the sale of debt consolidation mortgage. The firm was asked to write to every client who took out such a mortgage during the period between 2007 and 2014 and inform them that they may not have received suitable advice.

In particular, the letters highlighted that the firm may have neglected to consider:

  1. Whether the client should instead have entered into a debt management or insolvency arrangement to try and solve their debt problems
  2. Whether it was appropriate to convert previously unsecured debt into secured debt, thus increasing the potential risks to the client of failing to maintain repayments
  3. The costs involved with extending the term over which the debt was to be repaid.

Although debt consolidation may reduce the amount being repaid each month, a mortgage typically has a much longer repayment term than other forms of borrowing. Clients may have as a result ended up paying a great deal in additional repayments once all monthly payments over 25 years or so are added up.

This case illustrates the importance of giving suitable advice to clients, and the importance of having a rigorous compliance monitoring programme in place so that unsuitable advice is identified at point-of-sale, ideally before any products are taken out.

It also demonstrates that consolidation of debt should not be considered as a one-size-fits-all solution to a customer’s debt problems. The risks of securing previously unsecured debt, and the fact that consolidation may result in more needing to be repaid over a longer term are just some of the reasons why this strategy may not be suitable. Sometimes, receiving professional debt advice may be preferable to consolidating.

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