Examination of Witnesses (Question Numbers
92-99)
MR JON
PAIN AND
MR LESLEY
TITCOMB
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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