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‘Not much substance’ to FCA’s unaffordable second charge lending claims – FLA

  • 24/09/2019
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‘Not much substance’ to FCA’s unaffordable second charge lending claims – FLA
The Financial Conduct Authority (FCA) could not provide “much substance” to its concerns that second charge lenders were targeting and profiting off unaffordable borrowing, the Finance and Leasing Association (FLA) has revealed.


The trade body for second charge lenders said the FCA “did seem to not have any backup” for its statement that parts of the second charge market were designed to benefit from consumers going into arrears.

In its business plan published in April, the FCA said: “We are concerned that the business models of some retail lending products, including some subprime credit and second charge mortgage products, are designed to benefit from consumers not repaying their debts.

“For example, firms may make profits from consumers who do not or cannot repay in full and on time.

“We will carry out work to identify these business models and the consequences for consumers and use our findings to identify what action we may need to take,” it added.


‘Not much substance’

This statement took many in the second charge market by surprise at the time.

Speaking today, FLA director general Stephen Sklaroff (pictured) said the trade body had protested it and the FCA had not produced evidence for its concerns.

As a result, he said the FCA removed reference to the second charge market from a page on its website related to ongoing work in consumer credit markets.

The page in question was originally published on 20 July and then updated on 26 July when the second charge reference was removed, the FLA stated.

“There was a very strange assertion in the FCA business plan which we challenged vigorously and in consequence the wording it used about the second charge market was removed from its website as there wasn’t much substance to what it said,” Sklaroff said.

“I think it was accidental wording. It were talking about markets where it might have concerns. No information was forthcoming and so it removed the wording.”

He added: “Its one of those things where everyone we asked didn’t see that [in the market].

“As far as I’m aware there are no particular concerns in that market. The FCA doesn’t seem to have any backup for its statement.”

However, the statement still remains on page 30 in the FCA’s business plan where it was originally published.

When contacted by Mortgage Solutions, the regulator did not deny the wording had been removed and could not confirm what its policy was in the area.

An FCA spokeswoman added that any changes to the business plan were usually announced.


Seconds ‘in better place today’

Sklaroff was speaking ahead of his departure from the FLA at the end of the week having spent 12 years at the trade body.

He noted the second charge market had gone through two rounds of regulatory changes in his time but warned the biggest challenge was not the scale of change, but how fast it was happening.

“It’s the pace of change. Since 2014 we haven’t seen a month or sometimes even a week when there hasn’t been a new consultation or proposal affecting our markets,” he said.

“Particularly for smaller and medium sized lenders the pace of continued regulatory change is challenging because it’s a cost, and smaller firms are often less well set up to deal with those things,” he added.

However, overall Sklaroff said he believed that it was “in a better place today”, even if trading volumes were lower than its pre-crisis peak.

“Looking at the agreements in place, they were worth £12bn pre-crisis but now they are up at £5bn in 2018, and July was the highest new business month since 2008,” he said.

“There’s no reason to expect the current growth not to continue although the scale of that growth will depend on economic circumstances.

“If I was looking at those numbers from the outside I would see this is a growing market, it’s adapted well to new regulation so it’s quite attractive,” he added.



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