Promoting second charge for debt consolidation leaves industry ‘open to accusations’ – analysis

by: Christine Toner
  • 02/11/2017
  • 0
Promoting second charge for debt consolidation leaves industry ‘open to accusations’ – analysis
Actively promoting second charge loans for debt consolidation could leave the industry wide open to claims management firms, an industry commentator has warned.

Martin Stewart (pictured), founder of London Money Loans says: “I think you have to be careful about being seen to promote a second charge mortgage as a way to help with debt consolidation. It is fine to make a fellow professional aware of the product’s potential, but if I were a broker, packager or lender actively promoting this direct to the consumer I would be wary of an ambulance chaser knocking on my door at some point in the future.

“The UK is already heavily indebted and the ease at which people can take on credit is worrying. There needs to be an attitude change first and then a solution presented as part of a wider financial review.

“If a second charge mortgage is the most suitable outcome for the client all well and good. If however people are offering a solution before they find the problem then that is leaving them and the industry open to all sorts of accusations,” he added.

The debt management industry has come under significant scrutiny of late with the Financial Conduct Authority raising concerns about practice in the industry and consulting on plans to further its regulation of the sector.

Merits discussion

However, opinion on whether offering seconds for debt consolidation was a good thing was split across the specialist lending industry.

Paul McGerrigan, chief executive officer at says the topic “definitely merits discussion”.

“Second mortgages are one product available to consumers as a vehicle to raise money along with unsecured loans, remortgages, further advances etc,” he says. “If a customer has accrued a level of debt that they have no plans or actions in place to reduce then I think this is unhealthy and any activity to address and reduce this should be at least considered.

“If they make a decision to action this and restructure their debt with a plan to reduce it over time this is a sensible course of action. The product they use for this exercise will of course be dictated by their personal circumstances and the rates, fees and overall cost with each solution,” he added.
Merrigan says it is the responsibility of professional advisers to ensure the customer is fully aware of the short and long term implications of their actions and the customer must appreciate their role in being a responsible borrower.

Not primary objective

Steve Walker, managing director at Promise Specialist Lending, says while debt consolidation is a regular element of the firm’s second charge loans it is not necessarily the primary objective.

“It is vital that the advice around any debt consolidation is appropriate and this being the case I see nothing wrong with promoting second charge loans for debt consolidation as part of a balanced promotion,” he says. “Clearly the specific targeting of vulnerable borrowers with debt problems combined with a poor advice process will lead to customer detriment and this has no place in our industry.”

Meanwhile Tony Marshall, managing director at Equifinance, said that where used appropriately, debt consolidation can assist customers to regain control of their finances along with providing them with access to mainstream products over time.
“Although securing an unsecured debt should not be completed without due consideration, the interest rates available can be significantly less than those available on unsecured products,” he adds. “Promotion of this type of solution is acceptable provided the customer is advised correctly in the process.”

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