Mortgage Credit Directive (MCD) for Intermediaries

This blog is the first of a number of blogs on the MCD. The purpose is to help you prepare fpor the implementation of the MCD from 21st March 2016.

The first thing to pint out is that you are perfectly at liberty to commence these activities at any time now  until 21st March 2016. There would be  some benefit in doing this a couple of months before because there are no transition arrangements in the MCD and so pipeline cases going through might be technically incomplete after 21st March 23016. That being said, there isn't really a lot for mortgage intermediaries to do.

In processing or  compliance terms , the MCD will not in any way be as onerous as the changes at MMR. 

Disclosure

There are some pre-contract (KFI stage) disclosures that will need to be addressed. The KFI will be  replaced by the ESIS (European Single Information Sheet) and this has to be  done no later than 21st March 2019. However, I get the impression that lenders are looking to deliver this sooner and we may actually get the ESIS from 21st March 2016 ( day-one as it were) if not even possibly sooner (it can be implemented from 21st September 2015). If they don’t have it in place for 21st March 2016, we will need to include some additional information with the KFI until replaced by the ESIS. This information is :

• the 7-day right of reflection;
• where the rate is variable, information on the  Annual Percentage Rate of Charge (APRC) and the borrowing rate (including warnings about the variability of these rates)
• where the mortgage is a foreign currency mortgage, additional information including an illustration of the impact of a 20% change in the exchange rate.

On the last point I think we are not going to see many foreign currency loans as there are serious exposures to lenders as a result of new consumer rights.

Lenders and the sourcing systems are going to have to address these issues before 21st March and so this is should be  a non-issue for intermediaries in the same way that we rely on KFIs at the moment to be  produced correctly by lenders and sourcing systems. This will be  the subject of a future blog in the next couple of weeks.

Adequate Explanations

The terminology used by the FCA in this is note particularly helpful. 

Firms will need to provide adequate explanation of the products and services provided. Just exactly how this is done is down to individual firm and circumstances. Firms will have to provide an adequate explanation of the proposed mortgage contract and any ancillary services, and the explanation must include the pre-contract information(KFI  / ESIS), the essential features of the product, and the potential impact on the consumer (including the consequence of default). This sounds a bit like a talk through the KFI or ESIS plus but I will expand on this in a future blog.

Remuneration

Sales personnel (including ARs etc) cannot be paid on the basis of sales targets from 21st March 2016 but few if any firms that I deal with still operate on this basis, as the writing has been on the wall for years.

Procuration Fee Disclosure

We already have proc. fees includedc in s13 of the KFI at the present time . From 21st March,  where firms receive proc. fees you must tell consumers that they have the right to ask for information on the commissions paid by different lenders, and ensure that you have access to relevant market data to allow them to respond to such a request. This will be more a pain than anything else and might mitigate in favour of using a Terms of Business Letter rather than a mortgage IDD to ensure that this is covered from 21st March. Again I will be  publishing proposals over the next couple of months.

Second Charges and Consumer BTLs

Second charge mortgages come under mortgage regulation from 21st March 2016. This means that the MCOB handbook applies to second charges from 21st March 2016. ESIS comes in at that date for second charges as there is no provision for a 3-year delay. 

The same applies to Consumer BTLs. You will need to apply for a Variartion of  Permission for CBTL before 20th March 2016. It is done through Connect and costs £100 application fee to FCA. It is very straightforward to do.

Regarding  second charges, I understand  from the FCA web site that the FCA will contact firms after Christmas and I suspect the same approach will be adopted. I.e. VOP through Connect.

Alternatives to Mortgages

Since MMR there has been an obligation for firms to ensure that the client has looked at the possibility of a further advance from an existing lender where additional borrowing is required. (Oh yes there has!) From 21st March 2016, this obligation will extend to looking at the possibility of second charges as well in the same circumstances ( i.e where further borrowing is required). I expect that this obligation will only apply if your firm has extended its permission to include second charges but we will need to see what the FCA says in the early new year (2016) about this before being clear.

That is pretty much it in terms of high level issues. There are a number of market issues to think about as well as some knock on effects for processing . For example do I use an IDD or a Terms of Businessbut I will cover these matters at a later date.

The Recent FCA Survey Email

A number of you have received emails from the FCA inviting you to complete a feedback survey for them. I haven't actually seen the content of these but I would make a couple of points about them.

Although the surveys apparently take about 20 minutes, I would argue that it would be  a good idea to complete. There are two reasons for this.

Firstly,presumably it is a chance to have a say about the FCA and make any points of annoyance etc if they give you the opportunity.

Questions that come to mind are:

1. Why am I paying an FSCS levy now for the failures in investment sales when I have never sold investment products?

2. Why is there a constant stream of Variations of permission required for existing regulated firms (with costs) when, with a little planning these could have been covered under one VOP application?

But perhaps I am being a bit unreasonable?

Secondly, you notice that this survey response is to the FCA and not to some outside organisation.  Given that under the FCA regime, contact with firms is more hands off, I would suggest that every possible contact with the FCA gives the opportunity to demonstrate that you have engaged with them.

You will recall this word from the round of visits from the FSA on TCF and the like. There is nothing that a regulator likes more than to see that the firms that it regulates engage with them. This is an example. After all, on your file at the FCA however it looks there will be a simple entry of some kind I imagine. It will say something like.

FCA survey October 2015. Response received or response not received.

Which looks netter to a regulator when assessing your risk to regulation?

Cookie Law

This is just a thought  on the rules and requirements for Cookies on web sites. It is not a usual area of compliance that I focus on but I think it is important enough for focus!

I have seen a number of web sites recently where there is no explicit request for confirmation by the user to assent to the use of cookies. This is now a key part of EU Data Protection and failure to comply does render a firm or an individual liable to enforcement and potentially a fine  from the Information Commissioner.

As an aside, if you monetise your website using  Google Adsense you are also at risk of being struck off by them for failure to comply. Compliance here is not an FCA matter directly but obviously if you are in breach of data protection requirements then this could be  of interest to them.

Basically what you need is a popup message when a person first accesses you website that explains a bit about cookies and how you use data. You should also refer them to a privacy policy which should be  somewhere on your site.If you do not have these, you need to take action now because you are in breach of legal requirements.

There are a number of free facilities available on the internet and I am happy to refer  you to these if you need them, if you let me know. I can also provide you with an example of a  privacy statement if you so wish. Obviously privacy statements can be  as varied as firms can be different.

This is an action to take now rather than later becasue the originbal legislation came in some time ago.