Lenders will mostly be applying practices from the Consumer Duty open book deadline to the closed book one, it has been said.
When asked how mortgage lenders were preparing for the duty to be applied to closed book products by 31 July and how this might affect the market, Paul Broadhead, head of mortgage and housing policy at the Building Societies Association (BSA), said: “The big systems and process changes to reflect the requirements of the Consumer Duty vis-à-vis lenders and brokers happened last year, when the duty came into force for all on-sale products and services.”
He added: “Lenders are now overlaying the same principles to their back-book products.”
A spokesperson for TSB reiterated this, saying: “We are fully compliant with Consumer Duty requirements and have been engaging with our intermediary partners over the course of the implementation.”
A Barclays spokesperson said: “Ensuring customers receive good outcomes is something that Barclays strives to deliver.
“Consumer Duty has provided a useful framework and is something that we have put significant effort into implementing over the last two years. As a result, we don’t expect there to be major changes to our offering on 31 July, as many of our updates have already been implemented.”
Broadhead there would be little impact on a mortgage broker’s role, as they would mostly be dealing with on-sale products.
He said: “Lenders already have processes and systems in place to communicate with brokers and ensure they remain updated on products, pricing and criteria, which will continue.
“We continue to liaise regularly with both lenders and brokers, and have not heard of any concerns or issues regarding the closed book deadline next month.”
Brian Pitt, chief executive at Rockstead, said the Financial Conduct Authority (FCA) had not given regulated prescriptive information on Consumer Duty, and rather it had been “based on principles”.
“It’s an extension of Treating Customers Fairly principles, more than anything,” he said, echoing the views of Broadhead.
Financial market considerations
Considering how this could affect the transacting of mortgage portfolios, Pitt said sellers would need to ensure they were giving buyers as much information as possible on how they were treating customers.
He said purchasers acquiring a mortgage portfolio would need to make sure what the seller told them was appropriate and correct.
Pitt said buyers needed to apply Consumer Duty on an ongoing basis from the point of sale.
He added: “The information that the buyer needs includes understanding how the product was designed in the first place; the basis on which it’s been assessed.”
Spirit of Consumer Duty running through a firm
Pitt said buyers also needed to confirm practices complied with fair value expectations, although the FCA’s definition was “vague”.
He said: “Consumer Duty needs to be embedded in firms. It’s got to be that everybody employed understands the rules and their responsibilities.”
It was good to have policies in place, Pitt said, but firms also needed “practical examples” and “a definition of fair value [that] applies across the life of the product and length of the relationship with the client”.
He said that could be a challenge.
The FCA is expecting firms to have policies and principles in place, while also going further with evidence of how they monitor Consumer Duty within their firm, Pitt suggested.
He said Rockstead had come across “great policies” at certain firms, but in some cases they had been “stuck on a shelf, [with] no proper application of them at the coal face”.
“In order for people to avoid regulatory attention, it’s quite critical that firms conduct external assessments,” Pitt added.
Pitt said it was too easy for firms to “check their own homework and come up with the right answers”.
He said what would change would be the application of the evidence of how lenders are monitoring ongoing responsibilities.
The FCA will look for evidence of this in spot checks, reviews and quality assessments.
“Although it complies with Consumer Duty in principle, they [also] need to be evidencing it in practice,” he added.
Applying new standards to old practices
Pitt said it would not be feasible for lenders to view legacy mortgage accounts through a Consumer Duty lens, but acknowledged that some “trapped” customers such as mortgage prisoners were paying higher rates than others.
He added: “If I’m buying a mortgage portfolio, I can’t go back and change the terms that those people signed up to.
“You can’t really go back and say the standards that apply today must apply to what happened in the past. But what you can do is look at characteristics of particular groups. Did it meet the principles at the time? Clearly the market changes all the time. Unfortunately, that doesn’t help mortgage prisoners.”
However, for those acquiring a mortgage portfolio, Pitt said they could make a “judgement call” on how to integrate any new borrowers into their new or existing portfolio.
“They need to be considering that. What they can’t do is continue to just isolate that one group of borrowers and continue to disadvantage them. What they have to do is carefully think about how they will deal with the customer going forward,” Pitt added.
Impact on funding lines and specialist lenders
When asked if Consumer Duty could change how some lenders approached financing smaller and specialist lenders who may not be regulated, Pitt said it was already standard practice to ensure the lender being funded “does what it says on the tin”, by carrying out appropriate due diligence.
He said this might include factors such as their credit policy and how they complied with other regulations.
Pitt said regardless of whether a specialist lender was regulated or not, “the FCA was likely to want to see the principles applied more broadly” in relation to its principles of business.
He said these considerations already overrode most existing measures.
Pitt said some unregulated products like buy to let (BTL) would fall “in a completely different category”, but the FCA would still look at the firm as a complete entity and determine if unregulated products were treated differently.
“As a business, that mortgage company would probably want to apply the same rules to everything,” Pitt said.
Shekina is the deputy editor at Mortgage Solutions and commercial editor at Mortgage Solutions and Specialist Lending Solutions. She has nearly eight years of experience in the B2B publishing market, having previously covered the hospitality, retail, pet, accounting and jewellery sectors.
Shekina has worked for Mortgage Solutions and Specialist Lending Solutions for almost five years. Here, she covers the market’s breaking news stories, engages with professionals in the sector, and oversees any commercially agreed content in partnership with mortgage-related companies.
This includes presenting webinars and hosting roundtable discussions on developing themes in the mortgage sector.
She is an NCTJ-trained journalist and was nominated for the Headline Money Awards Mortgage Journalist of the Year in 2021.
In her spare time, Shekina likes to read, travel, listen to music and socialise with friends.
She currently reports on current events in the mortgage market and liaises with financial clients to produce sponsored content.
Follow her on Twitter at @ShekinaMS
