In a Dear CEO letter written to mortgage intermediaries, Roma Pearson, director of consumer finance at the FCA, reminded firms of the incoming rules.
It is part of a series of letters being sent to different sectors under the regulator’s remit, alongside events to support firms and professionals get ready for Consumer Duty.
Pearson said the regulator expected the rules to be a “top priority” for mortgage intermediaries and explained how it applied to them.
She said mortgage intermediaries needed to understand the target market of products and take extra care for options catered to those “on the edge of the target market”.
Pearson advised intermediaries to get information from manufacturers about products, such as a “high-level summary” of its benefits, prices, fees and confirmation that the benefits are relative to the costs.
The Duty applies to manufacturers and distributors of financial products which includes mortgage intermediaries, Pearson said.
Intermediaries must also ensure their own fees and charges offer fair value, and does not stop the product or service from being of fair value overall. Pearson said vulnerable groups of people, such as those with adverse credit or older borrowers, should not be charged unreasonably high costs.
Second charge and lifetime mortgages
The second charge and lifetime mortgage markets were named as segments where “customers are more likely to have characteristics of vulnerability”.
Pearson said this could be due to affordability constraints, credit impairment or product features which are less familiar.
Pearson noted: “Both these product sets can have costs and features which customers may be unfamiliar with.
“It is vital for firms to consider how best to provide appropriate support, both at the point of sale, and over the term of the product or service provided including how this needs to be adapted for different types of customers.”
Areas to consider
Pearson said firms should pay attention to the possibility of giving unsuitable advice, particularly amid rises to interest rates and the cost of living.
She also said firms should be aware of excessive fees and charges, especially regarding second charge and lifetime mortgages.
Pearson said unclear advice and poor product design could lead to charging clients fees that they do not understand and that do not reflect fair value.
She also said the recent changes to the appointed representative (AR) regime went “hand-in-hand” with Consumer Duty as it aimed to strengthen the oversight of AR firms.
Intermediaries must also be aware of environmental, social and governance (ESG) strategies.
Mortgage lenders and administrators
Pearson wrote to mortgage lenders and administrators about how they would need to comply with Consumer Duty.
Consumer understanding, support and price and value were among the main areas of focus.