Examination of Witnesses (Question Numbers
23 MARCH 2010
Q60 Nick Ainger: Let me stop you
there, Mr Coogan. This is a pre-action protocol. In other words,
you do not get to court. That is the purpose of it, to actually
stop people ending up in court and going through the stress of
that and the cost of that. A third of the cases had not followed
that pre-action protocol. Presumably that is why they had ended
up in court. Perhaps if they had followed it they would not have
been in court in the first place.
Mr Coogan: It is difficult to
comment on the precise cases. I think the first thing to be said
is that one of the reasons why we were the first to push for a
check-list, which was introduced and referred to earlier, to ensure
that there is comparability and consistency in the courts, was
that we recognised there was scope for a difference of interpretation,
both at the adviser level in terms of what they thought the lender
should be doing and in the courts on how they interpreted what
the firms did. The check-list should remove that uncertainty and,
hopefully, the next survey will reflect it.
Q61 Nick Ainger: Again, in your submission,
in referring to these outliers, you are hopeful that the FSA will
now start to clamp down on these outlier organisations. Who are
these outlier organisations?
Mr Coogan: The FSA know who they
are, and that is no doubt a question you will ask them.
Q62 Nick Ainger: Presumably the CML
know who they are as well?
Mr Coogan: The answer to your
question is that it is unhelpful to the industry to have the suggestion
that people will be enforced against continue ad infinitum
without a resolution either way. It would be nice to know if any
of the firms who have been subject to enforcement are no longer
being pursued; it would also be nice to know if that enforcement
action is going to end any time soon, because what we all need
is the clarity of the reasons for the enforcement and the actions
that the industry as a whole need to take in response to those
concerns. The GMAC-RFC case was very illustrative of some of the
issues that lenders need to be reminded of, in particular that
charges are not a profit centre but they should be an administrative
Q63 Nick Ainger: So you would be
in favour of publishing the names of those organisations that
are under investigation?
Mr Coogan: I did not say that;
I did say that we would like to have clarity sooner rather than
later, which is the enforcement process being concluded properly,
because that is what the rules currently state.
Q64 Nick Ainger: Being concluded,
rather than when the FSA have made a decision that they are going
to carry out a full investigation?
Mr Coogan: "Innocent until
proven guilty" is still an important principle, I think.
Q65 Nick Ainger: There are many other
organisations, and Ofcom is one of them, that actually announces
when they are investigating a particular company for a possible
breach of regulation. What is the difference between the financial
services sector and the rest of industry?
Mr Coogan: I think the difference
is when it went through Parliament the view was taken that it
Q66 Nick Ainger: What you are saying
is you would like the status quo to continue in relation to that
piece of legislation?
Mr Coogan: I think it is fair
to the firms in an environment where enforcement action can last
for quite a considerable time that you do not have uncertainty
hanging over them by referring to them in public in one stage
and having many, many months before a final decision is taken
Q67 Nick Ainger: In terms of bringing
in the rules as regulation in relation to arrears handling, and
so on, the MCOB 13 proposals, (perhaps Mr Broadhead would like
to comment on this) is that a way forward so that these outlier
firms know that, rather than just abiding by guidance, these are
regulations that they have to abide by?
Mr Broadhead: I think any clarity
in the rules is absolutely welcome and some of the proposals that
have come out would help with that. The CML have industry guidance
and the BSA has guidance for its members as well which helps them
to understand and comply with those rules. I think there are two
points here: first of all, lenders must know exactly what the
rules are, and, second of all, the FSA must enforce those rules
effectively. In terms of guidance outside, if we got the rules
right and they were absolutely clearwhich is where we are
trying to movethen I do not think the guidance actually
would need incorporating into the rules because the rules themselves
would be clear enough. The key then, of course, is that the FSA
investigate and monitor compliance with those rules effectively.
Michael has alluded to the GMAC RFC case where there were some
issues but, actually, those issues had been apparent since 2004
and it was only fined last year. What has taken so long there?
It is a long, drawn-out process, so that needs to be helped. We
have recently seen some changes with the FSA enhancing its supervisory
team, recruiting more staff to make that far more effective. So
we need to assess whether or not that is successful. Once that
has been assessed we can then look at making changes to the conduct
of business rules to make sure those are targeted where there
is persisting consumer detriment which is absolutely the key thing
Q68 Nick Ainger: Mr Coogan, can I
come back to you? You never got to the point of these outlier
organisations. I am not suggesting that you name them all, but
are they in a particular sector?
Mr Coogan: It is fair to say that
it is most likely that firms who have got customers who are higher
risk, who have past credit problems, who may not be able to keep
promises to make regular payments, are more likely to be subject
to more assertive repossession processes, and, in particular,
the arrears management process is much more intensive. So in the
sub-prime sector I think the advice sector has highlighted a number
of organisations who are appearing in courts more than their market
share and that is all I can say on the point. The risk sector
will be those borrowers who are least likely to engage with the
customers most likely to have had past problems that have been
repeated, and those customers who therefore need to have intensive
Mr Broadhead: I think, Mr Ainger,
in terms of the FSA, the FSA has said in part two of their thematic
review that the issue was with specialist lendersthat is
the term that they use therewhich, essentially, is wholesale
lenders targeting particular, not mainstream, lending. So it is
those organisations that the FSA have been looking closely at
Nick Ainger: Thank you.
Q69 Chair: Could I just clarify your
point? You are complaining that the FSA are taking too long on
the enforcement process and you want that to change.
Mr Coogan: I think we are still
waiting for the outcome of a number of cases that were announced
Q70 Chair: There is a bit of frustration
on your part here that you want the FSA to get on with it.
Mr Coogan: The industry wants
clarity, and that means that if there have been mistakes made
they want to know what they were and how to correct them, and
if there are problems to be avoided they want to know what those
problems are. While there is just rumour about what the problems
might be and uncertainty about the timeframe, no one is helped.
Q71 Chair: If there was a long timeframe
then, does that not leave consumers vulnerable and unable to protect
themselves the longer this goes on?
Mr Coogan: I think it is clear
that no one is able to prepare themselves against what may or
may not happen as a result of FSA action, but we saw specifically
in the GMAC case there was a review backwards.
Q72 Chair: Hold on, hold on, I am
asking you a specific question: does this not leave consumers
vulnerable and more unable to protect themselves, with this process
Mr Coogan: It should not do if
the FSA does its job. As it highlighted in the GMAC case, it will
look to review the cases of past customers.
Q73 Chair: However, if you have vulnerable
consumers, the company is still in business, and you have got
a long process going on, there can be consumers who have been
affected adversely as a result of this situation.
Mr Coogan: That is one of the
reasons why enforcement needs to be prompt.
Chair: Okay, fine. Good.
Q74 Ms Keeble: Paul Broadhead, you
have put forward some proposals to changes to SMI. How many households
do you think would benefit from that? What do you think the costs
would actually be?
Mr Broadhead: We have put forward
some suggestions but we have not done a cost-benefit analysis
of exactly what needs to be done here. We have made a point that
it does need overhauling. We do believe that if the SMI is about
preventing repossessions that, actually, all loans and second-charge
loans, perhaps, ought to be considered as being included as well.
Q75 Ms Keeble: Can I just pick you
up on that? If people take out a loan secured on their home to,
I do not know, buy a car or something like that, why should the
taxpayer cover that under SMI?
Mr Broadhead: What was suggested
as well is that not necessarily is it always paid as a benefit.
So there may be an argument in those particular circumstances
that if we want to keep borrowers in their home longer term, if
that is the caseand this is somebody has lost their job
or suffered a reduction in incomethen through the SMI scheme
perhaps the interest can be paid for a period of time but, of
course, once they get back into employment and back on their feet,
it is actually repaid at a later date. I think that is a very,
very valid point because if we repossess there is always going
to be costs to government, whether it is central government or
local government in terms of re-housing people as well.
Q76 Ms Keeble: Would all of you agree
to the wider review of SMI that the previous witnesses spoke about?
Mr Broadhead: I think the key
thing going forward
Q77 Ms Keeble: Can we hear from the
other two as well?
Mr Coogan: I think the straightforward
answer is that the SMI changes made by the Government in 1995
were unhelpful but we did not see the impact of them because there
was not a recession until the last few years. The downturn in
the economy has brought to the fore the need to have a better
safety net as we touched upon earlier. The SMI changes can be
implemented and maintained at no cost to government if they introduce
a second-charge approach, and that also addresses the issue that
you touch upon, which is that people should repay the support.
If the purpose of government support is to keep people in their
homes it is not necessarily to support people who have bought
cars with the money.
Q78 Ms Keeble: So would you agree
to the wider review of SMI that the previous witnesses spoke about?
Mr Broadhead: Yes.
Q79 Ms Keeble: And yourself as well?
Mr Sklaroff: Yes, very much so.
Just to expand on specifically that point, as several of the witnesses
have said already this morning, what we have had so far is a series
of perfectly sensible expedients in terms of government policy
looking at how we cope with the consequences of current circumstances,
and, indeed, the industry itself has brought forward a whole series
of measures to do with forbearance and so on that we have been
discussing. However, I do think that there is a strong argument
for taking a wider look at what this landscape is going to be
like over the next number of years as the economy changeshopefully
we come out of recessionbut looking at everything from,
as was mentioned earlier, insurance arrangements, right through
to these government supported schemes.