Select Committee on European Union Fortieth Report


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 2005,[214] 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 and Institutions).

  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 model.

  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 more fully.

  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 scrutiny.

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 share.

  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 MP

  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


 
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