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FCA rejects pleas to compel closed book lenders to offer trapped borrowers new loans

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  • 23/10/2020
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The Financial Conduct Authority (FCA) has rejected calls from mortgage prisoners to make it compulsory for lenders to allow borrowers to switch from closed book firms to active lenders within the same group without conducting an affordability assessment.

 

Instead, the regulator said it was up to lenders to decide whether to implement its initiative that permits intra-group switching.

The FCA originally proposed the change, which will be optional for lenders, in July and having consulted is introducing it immediately without any alterations.

Publishing the feedback to its consultation, the regulator said there was general support for the rule change from respondents.

The FCA said firms and trade associations had emphasised it should remain a commercial decision whether lenders make use of the new rule.

These organisations noted that many eligible borrowers may not meet the risk appetite of the relevant active lender, due to the poor risk profiles of many of these borrowers.

Securitisation agreements would also have an impact, they argued.

However, others asked to make it a mandatory requirement for lenders to use this rule, with one respondent suggesting all customers within a single banking group should be offered the same deals.

Consumer groups also requested a compulsory communications strategy from firms, to ensure that that eligible borrowers would be aware of this rule.

 

Lending a commercial decision

“We intend to implement these proposals as consulted on,” the FCA said.

“We are aware that lenders’ appetite to make use of this rule change may be influenced by a number of factors, including eligible borrowers’ risk profiles, lenders’ risk appetites and wider market conditions.

“While we hope that firms may choose to make use of this rule change where it is within their risk appetite to do so, it will remain a commercial decision as to whether firms make use of this rule. We cannot force firms to lend.”

The regulator also said it was not appropriate to mandate a communications strategy.

“A mandatory communications strategy would add additional costs for firms. Also, if firms choose to use this rule, many closed book customers in their group may be outside their risk appetite,” it added.

The regulator highlighted that unlike the modified affordability assessment there was no requirement for borrowers to be up‑to‑date with payments to take advantage of the situation. However, it recognised that general industry practice is to not offer borrowers in arrears a new deal but instead provide more tailored support.

 

 

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