201504 CM April

Mortgage customers are frequently seen as being ‘vulnerable’ in
consequence of their financial difficulties. Their arrears may be linked
to unemployment, divorce or illness. The FCA defines a vulnerable
customer widely as ‘someone who, due to their personal
circumstances, is especially susceptible to detriment ...
– ROSANNA BRYANT
should take reasonable steps to obtain
from its customer all information likely to be
relevant for the purpose of giving advice.
The FCA found that the banks’ processes
for assessing affordability were inadequate
in that they had not considered the full
extent and implications of a customer’s
budget and additional committed or future
expenditure when making a personal
recommendation. In relation to the length
of the mortgage term, the banks were
criticised for accepting their customer’s
preference without assessing (as required)
its appropriateness.
Crucially, firms must be able to evidence
suitability as required by the rules on record
keeping. According to the FCA, only a small
percentage of the banks’ sample mortgage
applications reviewed contained sufficient
information to evidence the basis of the
recommendation and to show that it was
suitable. Whether the advice given was
suitable is of little help, if no record is kept.
attempts to find a solution have failed, the
FCA considers that, especially in cases
of long term unaffordability, this step may
be in a customer’s best interests and that
excessive forbearance will only cause
additional detriment by increasing the sums
outstanding. Firms must therefore proactively
engage with customers, identify
the problem, the prospects for payment
and develop a plan suitable to their
circumstances.
Suitability of advice
MCOB 4.7A provides that firms must ensure
that any mortgage recommendation is
suitable for that customer. The importance
of this requirement is reflected by the fact
it is also a high level rule within the FCA’s
Principles for Businesses. Principle 9 states
that: ‘A firm must take reasonable care to
ensure the suitability of its advice …’
The RBS and NatWest final notice is a
reminder that to fulfil this obligation a lender
Systems and controls
The need to have adequate systems
and controls with properly trained and
competent staff, underpinned with sufficient
resources is clear from these enforcement
cases. These weaknesses contributed to
the primary failings in arrears management,
suitability of advice and complaints
handling. By way of example:
•
the key assurance function at RBS and
NatWest responsible for reviewing,
assessing and remediating advised
mortgage sales did not operate effectively
with a knock on effect on the value of
management information;
•
YBS’ arrears handling policy
documentation provided insufficient detail
to staff, was fragmented and incomplete
(there being no policy towards noncooperative
customers);
•
RBS and NatWest failed to provide staff
with adequate training to support them
in changes to the sales process with
the result that improvements were not
embedded;
CONTINUES OVERLEAF
The recognised standard in credit management
www.cicm.com April 2015 35