MORTGAGE CREDIT IN THE EU (11500/05)
Letter from the Chairman to Ivan Lewis
MP, Economic Secretary to the Treasury, HM Treasury
Thank you for your letter dated 23 November
enclosing a copy of the Government's Response to the Commission
Green Paper. This was considered by Sub-Committee G (Social Policy
and Consumer Affairs) on 12 January.
As I explained in my letter to you dated 31
October 2005, Sub-Committee G's main concern is for the consumer
protection aspects of any proposals which may emerge from this
consultation, as well as for any comparisons with the Commission's
parallel proposals for Consumer Credit Harmonisation on which
the Sub-Committee's Inquiry has now been resumed. But the possible
implications of this consultation are also of concern to Sub-Committees
A (Economic and Financial Affairs) B (Internal Market) and E (Law
We are struck by the cautious approach adopted
thus far by the Commission in the Green Paper, and especially
by the extent to which the Commission has already studied the
case and scope for market integration, and by the Commission's
commitment to a full cost/benefit analysis. This contrasts with
the Commission's approach to the Consumer Credit Proposal. We
will want to pursue that difference of approach with the Commission
and the Government in the Consumer Credit Inquiry.
From what we have seen so far, both the Green
Paper and the Consumer Credit Proposal appear, for similar reasons,
to beg the question whether a fully integrated single cross-border
market in either mortgage or consumer credit transactions between
individual lenders in one country and borrowers in another is
feasible or desirable in the near future. But we note that the
Green Paper extends the scope of the consultation to the acquisition
or establishment of branches or subsidiaries in other Member States
and would be interested in the Government's view of the desirability
of that approach for both mortgages and consumer credit.
Even if full harmonisation in either market
is unlikely to be attainable in the short-term, we would like
to consider the extent to which other aspects of the proposals,
such as the requirements for consumer information, advice, data-sharing,
early repayment, interest rates and redress, might be standardised
to give greater certainty, improved market access and appropriate
common levels of consumer protection to mortgage and consumer
credit transactions throughout the EU.
We note what you say in your paper about the
cost of regulation and the need to explore alternatives. We agree
that these aspects should be fully explored for both mortgages
and consumer credit. But this would need to be balanced by consideration
of the desirability of adequate consumer protection at an EU,
as distinct from a national level. This may be especially relevant
for those Member States where national consumer protection is
not as developed as in the UK and the Government may wish to consider
to what extent UK regulations and good practice may offer an appropriate
The Green Paper also invites views on the feasibility
of a Euromortgage that would be legally recognised in all Member
States proposal and the related idea of a so-called 26th regime
for mortgage credit, which would not displace national laws but
would sit alongside the existing legal regimes and would apply
if the parties opt into it. We note the Government's initial response
to the latter, but suggest that these ideas may be worth exploring
We see that the Government's response was submitted
jointly by the Treasury and the FSA, but would be glad to know
to what extent it reflects consultation with UK financial services
and consumers representatives and what the Government's plans
are for consulting those sectors as this exercise proceeds.
We will continue to hold this document under
12 January 2006
Letter from Ivan Lewis MP to the Chairman
Thank you for your letter of 12 January.
I note the importance that Sub-Committee G has
attached to the protection of consumers. That is a concern we
As regards the development of these markets,
the Commission is quite right to pay careful attention to the
ease with which lenders can enter new markets. This is how choice
and competition can be enhanced throughout Europe. We told the
Commission that their priorities should lie, for example, in increasing
access to consumer credit data as part of a broader strategy to
increase market access.
Clearly there is a balance between regulatory
burdens and consumer protection. We have told the Commission and
other Member States that we believe we have struck the appropriate
balance for the UK in the new rules that took effect here in 2004.
The process that informed UK mortgage policy development, of cost-benefit
analysis, widespread consultation, and consumer facing research,
is a model that others could usefully follow.
Our Green Paper response indicated that we are
content for further work to be undertaken on a 26th regime, building
on existing academic research.
The UK response to the Green Paper was developed
with UK stakeholders and informed by a seminar jointly hosted
with the FSA. That brought together consumers, UK lenders and
intermediaries, and others. My officials will continue to work
closely with all interested parties.
The Commission hosted an all-day consultative
hearing in December in Brussels, which was well attended, with
UK speakers active in the discussions. The Commission are expected
to publish their White Paper on mortgage credit in July.
The DTI, with whom we work very closely, may
wish to comment additionally on the points you make about the
Consumer Credit Directive.
31 January 2006
Letter from the Chairman to Ivan Lewis
Thank you for your letter dated 31 January which
was considered by Sub-Committee G on 2 March.
We note that the Commission are expected to
publish a White Paper on Mortgage Credit in July, based on the
recent consultations. We will examine that document closely when
it is submitted for Parliamentary scrutiny.
Meanwhile, we intend to pursue any aspects related
to our current Inquiry on the Consumer Credit Directive with Gerry
Sutcliffe when he gives oral evidence to the Inquiry on 30 March
and will continue to keep an eye on any other related developments.
We have, however, decided to release the Green
Paper from scrutiny.
2 March 2006
214 Correspondence with Ministers, 45th Report of
Session 2005-06, HL Paper 243, pp 660-665. Back