Second charge industry surprised by FCA’s concern

Michael Lloyd

April 17, 2019

Lenders and brokers seem surprised by the Financial Conduct Authority’s concern that sub-prime and second charge lenders may be profiting from customers who struggle to repay their loans.

The FCA said it will identify lenders with these business models and then look into how customers are affected and what, if any, action it will take.

Steve Walker, managing director of Promise Solutions, said: “I’m a little mystified by the FCA’s comment and haven’t seen any evidence of this personally. I’d be interested to learn more but I’m satisfied our advice process and aptitudes to TCF would prevent this from happening.

“There are second charge lenders that will accept adverse cases but often their affordability assessment is more rigorous.”

The FCA was writing in its Business Plan for 2019/2020.

Paul Carley, managing director at First Choice Finance, added: “I’d like to think that there’s no longer a lender currently practicing that would be inclined to merely profit from customers without a solid intention to help their financial position.

“If the FCA’s investigation finds practices like this it won’t show the industry in a good light and we would welcome any findings that truly seek to improve the industry further than the steps already taken.

“In addition to the adviser making sure any borrowing is not only affordable and appropriate, lenders’ income criteria is very stringent these days with ONS checks in the background, and in-built stress tests making affordability paramount in the decision process.”

However Lynda Blackwell, non-executive director at MoloFinance and ex-mortgage sector manager at the FCA said the regulator must have come across evidence of this.

Blackwell added: “I think this is a worrying sign that there are still pockets of this market continuing to act as though regulation had never happened.

“It’s three years now and there are no excuses. The FCA must have come across evidence of firms exploiting customers who are struggling to repay their second charge loan in their review of the sector last year or they would not be doing this.

“It’s good to see continued action from the regulator to bring standards up to where they should be and to rid the market of those firms and practices that continue to drag the reputation of this sector down.”

Furthermore, Martin Stewart, managing director of London Money, seemed to think the FCA may have a point.

He said: “The regulator is right to identify poor practices – though there are issues at the advice level as much as the lending level and there is a contagion risk that one may be giving birth naturally to the other.”

Broker Catherine Beaumont, also of London Money, said she isn’t surprised the regulator has its crosshairs on second charge. However she hasn’t come across clients who’ve failed to make repayments.

She added: “In my experience lenders are doing lots of due diligence.

“However it doesn’t surprise me the FCA is looking into how second charges are dealt with and regulated because fees, especially broker fees, are probably still a bit higher, on average lenders charge more for valuations and have higher rates than they do for first charge mortgages.

“There’s still practices whereby some brokers overlook a remortgage and go down the second charge route without looking at a first charge option.

“More education about the market is needed. Interest rates will be higher in the second charge market, but fairer rates and fees are coming into the market which will improve over time.”

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