ALBA 2007 – 1 plc - Irish Stock Exchange

The Seller follows the Guidelines which were issued by the OFT on 18 July 1997 and revised in
November 1997.
The Guidelines regulate the activities of lenders in relation to their activities in the non-standard
residential mortgage market in areas such as advertising and marketing, loan documentation and
contract terms, the relationship between lenders and brokers, selling methods, underwriting, dual
interest rates and early redemption payments.
The actions of any broker or other intermediary involved in marketing a lender's products can
jeopardise the lender's fitness to hold a consumer credit licence, and the Guidelines make clear that
lenders must take all reasonable steps to ensure that such brokers and other intermediaries comply with
the Guidelines and all relevant statutory requirements. This is so even if the lender has no formal or
informal control or influence over the broker.
According to the Guidelines, advertising and other promotional material must be clear and not
misleading, and the Guidelines prohibit unfair sales tactics.
The Guidelines pr ovide that lenders must carry on responsible lending, with all underwriting decisions
being subject to a proper assessment of the borrower's ability to repay, taking into account all relevant
circumstances, such as the purpose of the loan, the borrower's income, outgoings, employment and
previous credit history. Lenders must take all reasonable steps to verify the accuracy of information
provided by borrowers on or in support of the loan application and all underwriting staff must be
properly trained and supervised. The Guidelines are designed to be provided promptly with full
explanations of all fees and charges to be payable by the borrower in connection with the mortgage.
Charges payable on any early redemption (in whole or in part) are also restricted under the Guidelines.
Essentially, partial repayments must be permitted and any early repayment charges must do no more
than cover the costs reasonably incurred by the lender in processing the payments. Certain lenders had
previously used the Rule of 78 to set the charges due from borrowers on early redemption, but the
Guidelines state that this is unfair and oppressive and that lenders must discontinue its use at the earliest
opportunity for loans not regulated by the CCA.
Lenders regulated by the FSA are subject to requirements as to "responsible lending". They are
required to take account of the borrower's ability to repay before deciding to enter into a regulated
mortgage contract or to make further advances on such contract. They are also required to put in
place, and to operate in accordance with, a written policy on responsible lending.
The Guidelines emphasise prompt notification to borrowers of any changes in the terms and conditions
of the mortgage. For example, the lender may not change the borrower's monthly payment date
unilaterally unless at least two months' written notice has been given, and the borrower must be given
written notice of any increase in interest rates at least fourteen days before the date on which the
relevant payment falls due.
The Guidelines also state that inclusion of an annual flat interest rate, in cases where the amount of
interest component of the payment made by the borrower on each payment date under the loan is
calculative on the basis of the full amount drawn under the loan, rather than the principal amount
outstanding from time to time under the loan, should be avoided.
In addition, the Guidelines discourage lenders from charging a higher interest rate on default on the
basis that it is unfair and oppressive. Any administrative charges incurred on default must be
reasonable, covering the lender's administrative costs only, and must be set out in the documentation.