Mortgage arrears: follow up - Treasury Contents

Examination of Witnesses (Question Numbers 92-99)


23 MARCH 2010

  Q92 Chair: Good morning, Mr Pain. Welcome to the hearing. Can you introduce yourself and your colleague for the shorthand writer, please?

  Mr Pain: Certainly, Chairman. Jon Pain, Managing Director of Supervision at the FSA.

  Ms Titcomb: I am Lesley Titcomb. I am the Director of Small Firms and Contact at the FSA, and I am also the lead for the FSA sectorally on retail intermediaries and mortgages.

  Q93  Chair: Good. Welcome back. This morning the FSA has published a feedback document based on responses to the proposals outlined in the Mortgage Market Review. In the Review you proposed a number of policies such as introducing loan-to-value, loan-to-income and debt-to-income caps, affordability tests and income verification measures to curb irresponsible lending and ensure that firms only lend to people who can afford to pay the money back. How did the mortgage industry respond to your proposals, such as affordability tests or prohibiting certain loans to consumers with a mix of high-risk factors?

  Mr Pain: I think the feedback statement reflects the fact that the response from the industry and other bodies at large was, largely, as you would expect. So some of the lenders had some concerns over how, in practical terms, some of the measures on affordability would actually work, and various other bodies had, obviously, correspondingly different views in respect of the importance of affordability. However, I did not see anything in the feedback we had from the industry or from other institutions or interested parties that surprised us, so I think it was fairly predictable.

  Q94  Chair: What arguments did they deploy, say, against introducing LTV, et cetera?

  Ms Titcomb: On the issue of LTV and LTI caps, we actually set out in the Mortgage Market Review that we felt they were not an appropriate tool for dealing with the conduct of business issues that we had identified, and that a proper approach to comprehensive affordability assessments, to income verification, to outlawing self-cert, that type of thing, were a more effective way of dealing with the issues. The responses to the MMR generally support that perspective. We have, however, pointed out that LTVs and LTIs, in particular, may have relevance as a macro-prudential tool to curb future lending bubbles, and we have not outlawed that completely. However, from a conduct of business perspective we do not think they are the best option.

  Q95  Chair: Did they acknowledge that the status quo was unsustainable and have their own vision for the future?

  Mr Pain: In general terms the feedback from the industry, broadly, was that they accepted that there needs to be some change. I think they had differing views as to the extent of that change, I think that would be fair to say.

  Q96  Chair: GMAC were recently fined £2.8 million for what you described as a serious failing in relation to its dealing with customers experiencing arrears and repossessions, in a case which the FSA described as "setting a precedent". Why did you attribute such importance to that case?

  Mr Pain: If you add to that as well, Chairman, of course, they were also asked to pay redress to consumers, which was a very important part of that whole process, and that was over £7 million as well, so the total cost to GMAC in that context is in excess of £10 million (I see the probability of it going up to £10 million). We think it was very important because, as we had discussed with you when we were here last, we wanted to show that if firms did not treat consumers appropriately then there were consequences, and these were the very stark consequences of not managing your arrears relationship with your consumers in a fair and even-handed way.

  Q97  Chair: We welcome that because that was a discussion we had. On the issue of naming and shaming, we have asked the previous witnesses about this and it would seem as if the enforcement process is too long, vulnerable consumers can be affected during that enforcement process, and is there not more of an impetus now to, in a sense, name and shame so that the industry is brought up quickly and sharply and consumers get a really good deal?

  Mr Pain: Yes, Chairman. We heard very strongly your feedback when we were last in front of you. As you and your Committee Members will probably be aware, as part of the Financial Services Bill presently before Parliament there are some provisions for changing that process. Clearly, we wait to see what progress that Bill makes. If those provisions were adopted that would change the process and the stage at which a firm would be identified as part of that enforcement process.

  Q98  Chair: You accept the frustration that is experienced here is genuine. Mindful that the FSA is now talking about the culture of companies, where it did not speak about it before, in Hector Sants' recent speech, I would like to think that you would be looking at this issue now since you have embraced a wider agenda, taking in culture and ethics.

  Mr Pain: Very much so, very much so. As I say, we await to see whether that particular clause passes through Parliament. Clearly, if it does, then we will act accordingly.

  Q99  Chair: However, if it does not pass through Parliament—

  Mr Pain: Then I think you could probably say we will not lose our endeavour of wanting to revisit that issue.

  Chair: Good. Excellent.

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