After reading through the Treasury’s response to the consultation on the regulation of mortgage advice, you could be excused for thinking there wasn’t much point in responding. Many areas of concern were dismissed by the Treasury and plenty of others left for the Financial Services Authority (FSA) to make a decision on.
But when it comes to pre-application illustrations (PAI), it seems the FSA, which has now published Consultation Paper 146 (CP146), has taken on board many of the suggestions put forward ‘ marking a considerable victory for the industry lobby.
The industry concluded ‘ as would anyone outside the FSA’s ivory tower ‘ that the document, which could have easily stretched to eight or 10 pages, was far too long. If the document is a few pages long, there is a chance the customer will read it, but as much as 10, and there is practically no chance.
At the moment, borrowers are already facing an information overload, so a new, shorter, PAI is good news ‘ but there is still confusion over when the document would be given to the customer.
CP146 states: ‘Our objective is that the consumer should be provided with a PAI as soon as possible in the sales process. The consumer needs a PAI as soon as a mortgage has been identified that the consumer might apply for.’
But what exactly does this mean? On the one hand, the words ‘as early as possibly’ suggest the PAI would be issued early on, before a buying decision had been made. This would make it slightly easier to help customers compare products and help them shop around, but again, if the customer is shopping around, there is a danger they will end up drowning in information.
On the other hand, the words ‘as soon as a mortgage has been identified that the consumer might apply for’ implies the PAI would only be prepared once the adviser has already whittled down the products and made a recommendation, to help the borrower decide whether to proceed. This interpretation of the PAI makes it more like the product confirmation letter ‘ which incidentally doesn’t seem to feature in CP146 ‘ and less like a comparison tool, which was the FSA’s original objective.
Two different interpretations imply two very different documents ‘ so it is time to clarify the role of the PAI ‘ whatever shape it takes it will form a vital part of the sales process, so it is worth making your views known.