What is the role of the consumer panel?
The panel’s main job is to give advice to the Financial Services Authority (FSA) on regulation, its policy and its practice. The advice we put forward is for the interest of consumers ‘ we try to put consumer views to the decision makers.
The panel was established under the Financial Services and Markets Act so we have a statutory footing. Under the Act, if the FSA does not take our advice and what we ask it to, then it has to give its reasons for doing so in public. This puts us in quite a powerful position.
Do you welcome the Treasury’s decision for the FSA to regulate mortgage advice?
Very much so. We have been arguing, along with all the other consumer groups, for the inclusion of advice in mortgage regulation right from the start. So we were delighted when the Government made a U-turn.
What is regrettable is the timing, because it now means N3 has been put back. That would not have happened had the original decision by the Treasury included mortgage advice. We would rather they did this right from the start ‘ but better late than never.
So much of what goes wrong with mortgages, as with any financial product, is in the selling process. We have never understood why selling one of the biggest financial products should fall outside the regime. We produced long documents and conducted extensive research in order to investigate the degree of consumer detriment and disadvantage that stems from bad advice. This produced a huge amount of evidence that mortgage advice was a problem and that the old voluntary regime was not delivering the goods.
The regime run by the Mortgage Code Compliance Board (MCCB) is not in a bad state. But when it comes to serious market failures, a voluntary regime cannot provide the same cast iron protection that statutory regulation can deliver.
Now that advice is to be regulated, do you think that consumer confidence in advisers will rise?
We have done plenty of research on how consumers view mortgage advisers. They see mortgages as complex products that need advice. When advice is regulated the notion of the Jack-the-Lad adviser will start to fade. At the moment, the mortgage adviser is not held in the same kind of esteem that the investment adviser is.
Regulation will be good for the industry and people will change their views ‘ although it will not happen overnight. Rightly or wrongly, research by the FSA shows that people do not have very high levels of trust in IFAs. However, I am sure regulation will make people slightly more confident about taking advice. They certainly need it.
Will proposals to define CAT-standard mortgages be a positive move for consumers?
One of the problems with CAT standards is that in a very busy and segmented market, where there are lots of different offerings and in a very competitive market, it is quite difficult to create a CAT standard that ties down a basic product that everybody can have confidence in and that represents best value. How much further you can go with CAT standards I do not know.
In theory it is a good idea, but in reality it is a highly competitive market and people want very different things from products. Now that the FSA is going to regulate advice and some of the nastier add-ons to mortgages have gone, I think the market will look after the value for money and the quality of products much more than CAT standards will.
What are your thoughts on pre-application illustrations ‘ do you think they are consumer-friendly?
They may be a bit long, but we thought the paperwork proposed by the FSA in its previous consultation was good and we favoured it. We like the look of the document and think people will be able to shop around much more effectively as a result.
We would like it to be shorter, but a lot of the good stuff is on the first couple of pages, which are most likely to be read. This format would make offers more comparable. Of course we would like it to be simpler, but there is an irreducible amount of detail. We do not want to see important details being left out. With mortgages, as opposed to investments, people tend to read their documents. When they are buying a house, people read surveys, they read the small print. It is about their home, what they will be paying out every month, rather than what happens to your money once it has been stashed away somewhere.
Do you agree with the Financial Ombudsman’s decision on dual rates?
The Ombudsman has judged providers are in the wrong there, so it is correct that providers pay up. There are plenty of people in the same boat who want to know why they are not being compensated.
The Ombudsman is not a regulator and this side of the business is not regulated. So we end up with a rule in an area where there is no regulation. If there was regulation we would have had consultation on it, but there has been none because it is just a rule. Instead, consultation has been circumvented.
Kirstie Redford is senior staff writer