Wednesday, 29 June 2011
Please meet the Co-Ordinating Committee - Part 2
Ok - let's take a look at those first "Minutes" of the recently established Co-ordinating Committee - a committee which includes senior individuals drawn from the FSA, the OFT, and the FOS.
If you have just finished reading the last post on this blog, you will know I am looking for a reference, any reference at all to the issue of bank charges. That's all, just a reference, even a passing comment, anything!
Well, let's see, here are the -"The Minutes"
You will first find the list of attendees at that first meeting of the committee held on the 25th of February 2011. All hold senior positions in each of those three organisations, as was intended when the committee was established.
These are the headings you will find - Credit brokerage: Adequate explanations and assessment of creditworthiness and affordability : Credit and store cards : Debt freeze/debt waiver products : Peer to peer lending : Exchange Traded Funds (ETFs) and other exchange traded products : Self-invested personal pensions (SIPPs) : Housing and mortgage market related risks : Payday loans : Cases to the ombudsman service : Retail Conduct Risk Outlook (RCRO) : Feedback statement to DP 10/1 : Reporting and monitoring of risks.
Now did you spot the heading on "Bank Charges"? Nope, neither did I. Did you use the link, and read every word, look at every paragraph - and not just take my word for it?
Maybe you looked under AOB?
A.O.B
There was no other business to discuss.
Nope, not there either.
I don't know how much you may know about the regulatory world, the world inhabited by the likes of the FSA, the OFT and the FOS, but suffice to say it is a world in transition. It has happened before, Gordon Brown once took the regulatory world apart (as it was) and reconstructed it - that was where the FSA first was born, under Gordon Brown.
The current Coalition Government are in the throes of taking it apart, and reconstructing it all over again. There will be nobody who has any interest in the world of regulation who is unaware of the changes that are underway - and that is true (at least one sincerely hopes it is true) of all those who attended that meeting.
It is they and their colleagues who are responsible now - today, responsible through a transition period over the next few years, and responsible thereafter for ensuring that what Parliament and the current Coalition Government say should happen - happens!
An important task - a very important task indeed.
So it raises this very interesting question - do they know what plans are in place under the current Coalition Government over this issue of bank charges? Nope, I am going to deliberately repeat what should be a ridiculous question - do they know?
Let's look at something from the Coalition agreement - the one formed by the current Coalition Government.
Here is where to source the complete document.
I just want to use one extract from it, this one:
We will introduce stronger consumer protections including measures to end unfair bank and financial transaction charges.
Yes, you might well shout "Eureka!" - the Government recognise something that links the word "unfair" with the two words "bank charges".
Yes it is good to find someone, in fact anyone, beyond those affected by the issue who does recognise there is in fact an issue.
But let's leave the politicians out of it for now - that is for later, let's just stick for now with those "Minutes", and the complete absence of any reference to bank charges. I wasn't really looking for words such as "fair" or "unfair", that might have been a hope too far.
I was just looking for the merest reference of any kind whatsoever to "bank charges". Just two words. More would have been good, but that was all I really wanted to read - that the issue was on the committee's agenda.
Stop for a moment - try this:
Imagine you were one of those attending that meeting, imagine you hold a senior position in either the FSA, the OFT, or the FOS.
Now would you think it likely that you would be aware of the three Court cases involving that issue over bank charges - or would that have slipped your notice, passed you by entirely, you just did not know about the specifics of the ruling the Supreme Court pronounced?
If that were the case should you be at the meeting, indeed should you be in the job at all?
Would you think it likely that you would be aware or unaware of the Coalition Government's proposals to address "unfair" "bank" "transactions" - or would you be blissfully unaware that they were even thinking about it.
Again, if was not something that you had any knowledge of whatsoever, should you be at the meeting, indeed should you be in the job at all?
If this was the very first meeting of a newly established co-ordinating committee, inclusive of senior figures from the FSA, the OFT, and the FOS do you think, maybe, just maybe, "bank charges" might just get a mention somewhere - even just a passing comment under AOB?
But there is nothing, nada, zilch.
Beyond perhaps wondering what on earth is going on - maybe the more important question is - why is there no mention of the issue over bank charges.
Why, given the responsibilities of those involved,
Why given the publicity that has raged around the issue of bank charges for years,
Why given a clear statement that the very issue of "unfair" bank charges is on the Coalition Government's agenda
Why do you think the issue over bank charges is nowhere to be seen on the Co-ordinating committee's agenda?
What possible explanation could there be?
The next post will address those questions.
Please meet the Co-ordinating Committee - Part 1
It is time I think to introduce you to a Committee which directly and specifically links the FSA, the OFT and the FOS - a co-ordinating committee. It was formed after discussion and consultation in February 2011. Very late in the day some might suggest.
Despite its relatively recent appearance, it may prove to be a pivotal body in reaching an answer as to whether bank charges are fair or unfair - not least because it is a committee on which all three of those bodies get together, but more importantly because of why they get together.
Let me explain.
Via this link you will find the Terms of Reference for the co-ordinating committee -
Let's look at some extracts (some of which I have highlighted and will give an explanation for so doing in my next post):
Coordination Committee
terms of reference
Functions
1. The main functions of the Coordination Committee (CC) are to:
(a) contribute to the identification of emerging risks that have the potential to
cause widespread detriment amongst financial services consumers;
(b) coordinate consideration of whether:
o emerging risks with the potential to cause widespread detriment should
be dealt with through firms’ complaints handling and the Financial
Ombudsman Service (ombudsman service) or through regulatory
intervention by the Office of Fair Trading (OFT) or the Financial
Services Authority (FSA);
o risks that are causing widespread consumer detriment should continue
to be dealt with by firms’ complaints handling and the ombudsman
service or through regulatory intervention by the OFT and FSA;
(c) promote alignment between the OFT’s or the FSA’s response to emerging
risks and widespread issues and the ombudsman service, with regard to the
potential differences between the regulatory approach and how the
ombudsman service is required to deal with individual complaints;
(d) promote alignment in key communications about the positions of the
ombudsman service and the FSA or OFT in the handling of emerging risks
and widespread issues; and
(e) contribute to the effective exchange of information between the FSA, OFT,
and ombudsman service.
4. Membership of the CC will comprise the FSA’s Conduct Risk Division, the
Executive Director of the OFT’s Markets and Projects Group, and the ombudsman
service’s Decisions Director. Each member will be accompanied by no more than
two other persons. A Director at the FSA will be the chairman.
Procedures
6. The CC will meet at regular intervals, at least four times a year. The CC will meet on
an urgent basis outside of scheduled meetings if, in the opinion of the member
seeking the meeting, it is necessary in order for the committee to fulfil its functions.
7. The CC will invite any person to take part in considerations that are consistent
with the discharge of the committee’s functions.
8. The CC will make public the issues it has considered. It will also make public the
actions taken by the FSA, OFT and ombudsman service where they relate to the
committee’s considerations.
9. Information sharing within the CC will be subject to the restrictions set out in the
memorandums of understanding between the FSA, the OFT and the ombudsman
service.
************************
Those of you following this blog will already know that earlier I used this test:
Test 3: Evidence that the Concordat agreed between the Financial Services Authority and the Office of Fair Trading established the basis for real consumer detriment and serious regulatory failings.
Item 9, the last item in those extracts above makes clear mention of such Memoranda of Understanding. There have been so many I have described them as a blizzard (earlier posts on this blog will justify that description)
Might it be that this new committee is a way of seeing through that blizzard, and reaching an answer over bank charges, and whether they are fair or unfair?
One would hope so, particularly when the opening paragraphs to the terms of reference for the committee read as:
1. The main functions of the Coordination Committee (CC) are to:
(a) contribute to the identification of emerging risks that have the potential to
cause widespread detriment amongst financial services consumers;
You don't need to look very far, or google for very long using "bank charges" as the two words involved to find that literally millions of individuals have been affected by the imposition of bank charges.
So, is help available at long last? Will this committee recognise the effect of bank charges on those millions of individuals, and offer an answer to what is essentially a very simple question:
Are bank charges fair or unfair?
Please always bear in mind the earlier evidence in this blog of what the Supreme Court said in their Press Summary:
This appeal involved a relatively narrow issue. The Supreme Court had to decide not whether the
banks’ charges for unauthorised overdrafts were fair but whether the OFT could launch an
investigation into whether they were fair.
So have we now seen a body formed, albeit late in the day, that will look at that simple question - and then answer it?
We need to look at the first set of "Minutes" from the co-ordinating committee to see what they have, and have not, indentified as emerging risks that have the potential to cause widespread detriment amongst financial services consumers.
Sadly might it be that the co-ordinating committee, comprising the FSA, the OFT and the FOS are but the latest example where their efforts, or lack of them, have yet again established the basis for real consumer detriment and serious regulatory failings. It would be quite something if there were "evidence" that was the case, would it not?
Did they identify "bank charges" in that category? Were they aware of the millions affected by bank charges, who wanted an answer to that simple question?
Crucially, why - given that the Supreme Court cannot have made it any clearer that their decision was in no way related to answering the question of fairness or otherwise -surely the issue of bank charges and its effects on millions of people, surely that simple question would appear on the committee's radar? Surely?
It really would be quite something if there were "evidence" that it was not considered at all. would it not?
Ironically, perhaps, even more important would be to understand why - if indeed it was not addressed.
The next - set of posts - will let you have the "evidence" you need to answer those questions. Starting with those first set of "Minutes".
Sunday, 26 June 2011
Supplementary Note - Forum Related
A number of consumer forums in the UK have allowed links to this blog to be given to their members, others are allowing extracts to be posted.
Those reading these posts, but not arriving here from those forums, will find my reference (in the post immediately above) to a recent Court ruling in the UK, and its importance, insufficiently explained.
This is a note I posted on those forums (Yes - I know it's fora - but fora as opposed to forums still just sounds wrong to me).
It is supplementary to this blog - but I hope will explain the reference and keep things in context
I have three more posts similar to those above to add to the blog.
They are repetitive in nature. I will not post extracts (as above) on here for that reason - but I will post the links to the last three items once they are added to the blog so that those interested can see the details for themselves.
For those reading these items. I should explain that since the blog was started last year, and before the Supreme Court decision, its existence and details have been made known to the FSA, the OFT, the Treasury Select Committee and others - including MSE Guy and Mike Dailly.
Contact with those bodies has continued as the blog has developed, and this week I issued a further series of e-mails to those bodies and this week added the FOS to the list.
Why the FOS, and only now?
In each of the above examples, and the ones I have yet to add to the blog, I am building a "body of evidence", which demonstrate the powers and effectiveness of the FSA, based not solely on the "Rules" which they enforce, but also on the "Principles" that they require to be followed by each party that they authorise.
Why is that important? Those that have a detailed knowledge of the recent Court ruling on the BBA case against the FSA over PPI - will know that s 150 of the Financial Services and Markets Act was central to the eventual ruling.
More importantly - in those legal arguments a hugely important distinction was drawn by the judge in that eventual ruling over the application of s 150 as it applied to the FSA and to the FOS. There is a difference - a crucial one - that separates the FSA and the FOS over issues of fairness and reasonableness - and that is where the blog is heading.
That distinction has a vital role to play in this whole matter of the fairness or otherwise of bank charges - and the "body of evidence" I am building in the blog will, I hope, play its part in having that distinction and its importance recognised.
Once I have completed the next set of posts - still painstakingly listing that evidence - I will then move onto an analysis of that Court ruling on PPI - and show its application to the question of bank charges.
I will post extracts here when they are posted on the blog.
Those reading these posts, but not arriving here from those forums, will find my reference (in the post immediately above) to a recent Court ruling in the UK, and its importance, insufficiently explained.
This is a note I posted on those forums (Yes - I know it's fora - but fora as opposed to forums still just sounds wrong to me).
It is supplementary to this blog - but I hope will explain the reference and keep things in context
********************
I have three more posts similar to those above to add to the blog.
They are repetitive in nature. I will not post extracts (as above) on here for that reason - but I will post the links to the last three items once they are added to the blog so that those interested can see the details for themselves.
For those reading these items. I should explain that since the blog was started last year, and before the Supreme Court decision, its existence and details have been made known to the FSA, the OFT, the Treasury Select Committee and others - including MSE Guy and Mike Dailly.
Contact with those bodies has continued as the blog has developed, and this week I issued a further series of e-mails to those bodies and this week added the FOS to the list.
Why the FOS, and only now?
In each of the above examples, and the ones I have yet to add to the blog, I am building a "body of evidence", which demonstrate the powers and effectiveness of the FSA, based not solely on the "Rules" which they enforce, but also on the "Principles" that they require to be followed by each party that they authorise.
Why is that important? Those that have a detailed knowledge of the recent Court ruling on the BBA case against the FSA over PPI - will know that s 150 of the Financial Services and Markets Act was central to the eventual ruling.
More importantly - in those legal arguments a hugely important distinction was drawn by the judge in that eventual ruling over the application of s 150 as it applied to the FSA and to the FOS. There is a difference - a crucial one - that separates the FSA and the FOS over issues of fairness and reasonableness - and that is where the blog is heading.
That distinction has a vital role to play in this whole matter of the fairness or otherwise of bank charges - and the "body of evidence" I am building in the blog will, I hope, play its part in having that distinction and its importance recognised.
Once I have completed the next set of posts - still painstakingly listing that evidence - I will then move onto an analysis of that Court ruling on PPI - and show its application to the question of bank charges.
I will post extracts here when they are posted on the blog.
*****************************
The FSA - In Action - 5/5
This is the last of 5 posts, which relate to the FSA taking action against firms which they regulate.
I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA to the firms or individual involved.
In each of these 5 posts I will include highlighted extracts.
1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.
2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself
However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.
As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.
In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)
However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.
And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".
You can find full details in the links for the full FSA Handbook I listed in an earlier post
*********************
Please read in full the Press Notice in this fifth and last example.
Here are some edited extracts:
FSA fines DB Mortgages for irresponsible lending and poor treatment of customers in arrears
Firms need to understand that we will not tolerate lax lending practices and unfair treatment of customers in arrears.
The Financial Services Authority (FSA) has today announced that it has fined DB Mortgages, part of the Deutsche Bank Group, £840,000 for irresponsible lending practices and unfair treatment of customers in arrears, and secured redress of approximately £1.5 million for DB Mortgages’ customers.
On treatment of customers in arrears, DB Mortgages did not consider customers’ individual circumstances or tell them about the range of options that were available to them, and applied charges that were unfair because they were charged repeatedly or did not accurately reflect the cost of administering an account in arrears.
''Firms which fail in their obligations to customers should expect not only a substantial fine but also that they will have to pay back customers who have been disadvantaged by their failings''.
**************************
Next let's look at the "Final Notice" for this example - please read in full.
However, here are some edited extracts:
TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary Wharf, London E14 5HS (“the FSA”) gives you final notice about a requirement to pay a financial penalty.
1. THE PENALTY
1.1. The FSA gave DB UK Bank Limited (trading as DB Mortgages) (“DBM” or “the Firm”) a Decision Notice on 15 December 2010 which notified the Firm that, pursuant to section 206 of the Financial Services and Markets Act 2000 (“the Act”), the FSA had decided to impose a financial penalty of £840,000 in respect of breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the FSA’s Principles for Businesses (“the Principles”) and Rules 11.3.1 R, 12.4.1 R, 13.3.1 R and 13.4.1 R of the Mortgages and Home Finance: Conduct of Business Sourcebook (“MCOB”) in the period between 13 January 2006 and 1 December 2008 (“the Relevant Period”).
1.2. DBM will carry out a customer redress programme to redress the failings set out in this notice (as set out in more detail at paragraphs 2.9 to 2.11 below). The total estimated cost of redress for the period is approximately £1.5 million including interest in relation to refunds of fees and charges and the payment for customers to receive independent financial advice. In addition, there will be a customer contact exercise which may lead to further redress but the amount can not be quantified at this time.
2. REASONS FOR THE ACTION
2.1. The breaches of the Principles and MCOB Rules, which are described in more detail in section 4 below, relate to a number of serious failings by DBM in its lending policy and practices, and in its treatment of customers who were in arrears.
Principle 6
2.5. The Firm breached Principle 6 and MCOB 13.3.1R during the Relevant Period in that it failed to ensure that the relevant mortgage servicing staff had an adequate understanding of, and implemented, the requirement to treat customers fairly in their mortgage arrears and repossession activities.
(2) failed to ensure that customer complaints were appropriately recognised and adequately dealt with by the relevant mortgage servicing staff;
(3) applied certain charges to customers’ accounts that were unfair in that the charges were repeatedly charged or did not accurately reflect the cost of administering an account in arrears. As a result of some of these charges, the Firm was also in breach MCOB 12.4.1 R;
(4) failed to develop an appropriate cost-based approach to the calculation of its arrears charges and therefore could not be sure that they were a reasonable estimate of the cost of administering an account in arrears. As a result of this, the Firm was also in breach of MCOB 12.4.1 R
Seriousness of conduct
2.7. The FSA considers DBM’s failings to be serious given the importance of ensuring that mortgage lending activities are conducted responsibly and take into account customers’ interests. The FSA also considers DBM’s failings to be serious because these failings created a significant risk that a large number of customers who were in mortgage arrears or who had incurred a mortgage shortfall debt (including customers with impaired or non-standard credit profiles) were not treated fairly. In some instances, such customers were also put at a risk of financial loss.
2.11. For failings in relation to DBM’s treatment of customers in arrears:
(1) DBM will write to all borrowers with regulated mortgage contracts which went into arrears and pay redress as appropriate;
(4) DBM will refund to borrowers any returned direct debit fee or returned cheque fee if that fee had already been charged in the same month;
3. RELEVANT STATUTORY PROVISIONS
3.1. The FSA’s statutory objectives are set out in section 2(2) of the Act. The relevant objectives for the purpose of this case are maintaining market confidence and the protection of consumers.
3.2. Section 206 of the Act provides:
“(1) If the Authority considers that an authorised person has contravened a requirement imposed on him by or under this Act, it may impose on him a penalty, in respect of the contravention, of such amount as it considers appropriate.”
3.3. The procedures to be followed in relation to the imposition of a financial penalty are set out in sections 207 and 208 of the Act.
3.4. DBM is an authorised person for the purposes of section 206 of the Act. The requirements imposed on authorised persons include those set out in the FSA’s Principles and Rules made under section 138 of the Act. Section 138 of the Act provides that the FSA may make such rules applying to authorised persons as appear to be necessary or expedient for the purposes of protecting the interests of consumers.
3.6. Principle 6 states:
“A firm must pay due regard to the interests of its customers and treat them fairly.”
3.7. MCOB 11.3.1 R provides that:
(1) “A firm must be able to show that before deciding to enter into, or making a further advance on, a regulated mortgage contract, or home purchase plan, account was taken of the customer's ability to repay.”
3.8. MCOB 12.4.1 R provides that:
(1) “A must ensure that any that it firmregulated mortgage contractenters into does not impose, and cannot be used to impose, a charge for on a except where that charge is a reasonable estimate of the cost of the additional administration required as a result of the customer being in .” arrears"
3.9. MCOB 13.3.1 R provides that:
(1) “A firm must deal fairly with any customer who:
(a) is in arrears on a regulated mortgage contract or home purchase plan
Unfair charges
4.28. During the Relevant Period, DBM failed to take sufficient steps to ensure that arrears fees and charges were based on a reasonable estimate of the cost of the additional administration caused by the customer being in arrears, for example no sufficient activity-based costing exercise was undertaken during the Relevant Period.
4.29. In addition, DBM levied a number of unfair charges on customers in arrears, including:
(1) a fee for a returned direct debit which was repeatedly charged by DBM;
4.30. The above charges were unfair because they were repeatedly charged or they did not accurately reflect the additional administrative costs incurred by DBM.
****************************
So, we have five examples of the FSA taking regulatory action against firms - dating as far back as October 2009 to the near present day in February 2011.
What do they tell us about the manner in which the FSA enforce both their "Rules" and higher level "Principles"?
What part do they play over the question of the fairness or otherwise of bank charges?
The answers to those questions will be addressed in the posts that follow.
They lead to this:
Let's ask Lord Turner and the FSA this very simple question:
Do you believe that the charges levied by Banks on their customers were and are fair or unfair?
I will also begin to cover the crucial distinction arising from the recent Court ruling in the Judicial Review in the BBA challenge to the FSA and the FOS regarding PPI - the crucial distinction over how the application of these FSA "Rules" and "Principles" are to be applied, and have now been recognised in law following that Court judgement.
The "evidence" I will lead will allow you to judge for yourself:
1 - why that question addressed to Lord Turner and the FSA - when answered - plays a unique part over the question of the fairness or otherwise of bank charges.
2 - why that recent Court ruling in that it reveals a crucial distinction between the FSA and the FOS - plays an equally unique part over the question of the fairness or otherwise of bank charges.
3 - why the OFT have proven to be the wrong route to follow to find an answer to the question of the fairness or otherwise of bank charges
4 - why despite all of the costs involved to date, despite the many column inches in the media, despite the financial and emotional difficulties faced by many who have faced these charges - we have not yet gained an answer to whether bank charges are fair or not.
I hope the posts and "evidence" to follow will play their part in finally answering that question.
I also hope to see you here as those posts appear and that "evidence" is provided.
I will also begin to cover the crucial distinction arising from the recent Court ruling in the Judicial Review in the BBA challenge to the FSA and the FOS regarding PPI - the crucial distinction over how the application of these FSA "Rules" and "Principles" are to be applied, and have now been recognised in law following that Court judgement.
The "evidence" I will lead will allow you to judge for yourself:
1 - why that question addressed to Lord Turner and the FSA - when answered - plays a unique part over the question of the fairness or otherwise of bank charges.
2 - why that recent Court ruling in that it reveals a crucial distinction between the FSA and the FOS - plays an equally unique part over the question of the fairness or otherwise of bank charges.
3 - why the OFT have proven to be the wrong route to follow to find an answer to the question of the fairness or otherwise of bank charges
4 - why despite all of the costs involved to date, despite the many column inches in the media, despite the financial and emotional difficulties faced by many who have faced these charges - we have not yet gained an answer to whether bank charges are fair or not.
I hope the posts and "evidence" to follow will play their part in finally answering that question.
I also hope to see you here as those posts appear and that "evidence" is provided.
Saturday, 25 June 2011
The FSA - In Action - 4/5
This is the fourth of 5 posts, which relate to the FSA taking action against firms which they regulate.
I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA to the firms or individual involved.
In each of these 5 posts I will include highlighted extracts.
1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.
2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself
However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.
As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.
In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)
However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.
And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".
You can find full details in the links for the full FSA Handbook I listed in an earlier post
Please read in full the Press Notice in this fourth example.
Here however are some edited extracts:
FSA fines mortgage lender and its director for irresponsible lending and unfair treatment of customers in arrears
The Financial Services Authority (FSA) has fined small mortgage lender, Bridging Loans Ltd, £42,000 and its director Joseph Cummings £70,000 for serious failures relating to lending practices and for failing to treat customers fairly in arrears.
The FSA has also banned Joseph Cummings, and taken action to prevent three other directors at the firm from being able to operate in senior positions within the financial services industry. This is the first case of its kind by the FSA against a mortgage lender’s senior management concerning irresponsible lending and unfair practices in respect of dealing with customers in arrears.
Margaret Cole, the FSA’s director of enforcement and financial crime, said:
"Joseph Cummings showed total disregard for the interests of Bridging Loans Ltd’s customers, basing his decisions and subsequent treatment of a customer on whether or not he liked or trusted them, rather than on any proper assessment of their circumstances.
"This sort of behaviour towards customers cannot be tolerated and the FSA will continue to take action where necessary against firms that fail to have the proper systems and controls in place to ensure customers are being treated fairly."
I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA to the firms or individual involved.
In each of these 5 posts I will include highlighted extracts.
1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.
2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself
However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.
As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.
In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)
However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.
And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".
You can find full details in the links for the full FSA Handbook I listed in an earlier post
*********************
Please read in full the Press Notice in this fourth example.
Here however are some edited extracts:
FSA fines mortgage lender and its director for irresponsible lending and unfair treatment of customers in arrears
The Financial Services Authority (FSA) has fined small mortgage lender, Bridging Loans Ltd, £42,000 and its director Joseph Cummings £70,000 for serious failures relating to lending practices and for failing to treat customers fairly in arrears.
The FSA has also banned Joseph Cummings, and taken action to prevent three other directors at the firm from being able to operate in senior positions within the financial services industry. This is the first case of its kind by the FSA against a mortgage lender’s senior management concerning irresponsible lending and unfair practices in respect of dealing with customers in arrears.
Margaret Cole, the FSA’s director of enforcement and financial crime, said:
"Joseph Cummings showed total disregard for the interests of Bridging Loans Ltd’s customers, basing his decisions and subsequent treatment of a customer on whether or not he liked or trusted them, rather than on any proper assessment of their circumstances.
"This sort of behaviour towards customers cannot be tolerated and the FSA will continue to take action where necessary against firms that fail to have the proper systems and controls in place to ensure customers are being treated fairly."
*************************
Next let's look at the "Final Notice" for this example - please read in full.
However, here are some edited extracts:
TAKE NOTICE: The Financial Services Authority of 25, The North Colonnade, Canary Wharf, London E14 5HS ("the FSA") gives you final notice that it has taken the following action:
1. THE ACTION
1.1 The FSA gave you, Joseph Cummings (“Mr Cummings”) a Decision Notice dated 12 October 2010 (“the Decision Notice”) which notified you that, pursuant to section 206 of the Financial Services and Markets Act 2000 (the “Act”), the FSA had decided to impose a financial penalty of £70,000 on you in respect of breaches of Statements of Principle 1, 6 and 7 of the FSA’s Statement of Principle and Code of Practice for Approved Persons (“Statements of Principle”) between 31 October 2004 and 25 August 2009 (“the relevant period”) in your role as director of Bridging Loans Ltd (“BLL”), and your failure to cooperate with the FSA in breach of Statement of Principle 4.
1.2 The FSA has also decided to withdraw your approval to perform controlled functions in relation to BLL pursuant to section 63 of the Act; and to make an order, pursuant to section 56 of the Financial Services and Markets Act 2000 (“the Act”), prohibiting you from performing any function in relation to any regulated activity carried on by any authorised person, exempt person or exempt professional firm (the “Prohibition Order”) on the grounds that you are not a fit and proper person.
2. REASONS FOR THE ACTION
2.1 The FSA has decided to impose a financial penalty on you, Mr Cummings, based upon the following facts and matters described below.
2.2 In summary, while performing significant influence functions at BLL during the relevant period, you failed to:
(1) act with integrity by knowingly misleading a customer;
(2) deal with the FSA in an open and cooperative manner;
(3) exercise due skill, care and diligence in managing the business of BLL for which you were responsible in your controlled function by not paying due regard to your regulatory responsibilities as an approved person or BLL’s as an authorised person, in relation to the entering into and administration of regulated mortgage contracts; and
(4) take reasonable steps to ensure that the business of BLL for which you were responsible in your controlled functions complied with the relevant requirements and standards of the regulatory system, in particular in the handling of complaints, treatment of customers in arrears and responsible lending.
4.7 As a mortgage lender authorised by the FSA, BLL was required to have systems and controls in place to ensure that it lent to customers responsibly. BLL had a responsibility to take account of a customer’s ability to repay the mortgage, prior to entering into that contract. Further, BLL was required to make adequate records of lending decisions and retain these for at least a year.
Arrears
4.13 BLL failed to deal fairly with customers in arrears.
4.17 You also failed to ensure that charges applied to customers in arrears were a reasonable estimate of the cost of the additional administration required as a result of that customer being in arrears.
5. ANALYSIS OF BREACHES
5.1 By reason of the fact and matters referred to at paragraphs 4.1 to 4.26 above, the FSA considers that you failed to comply with Statements of Principle 1, 4, 6 and 7, in that you:
(1) failed to act with integrity in dealing with customer complaints, as at paragraph 4.22, in breach of Statement of Principle 1;
(2) failed to act in an open and cooperative way with the FSA, including failing to comply with statutory notices, as at paragraphs 4.23 to 4.25, in breach of Statement of Principle 4;
(3) failed to exercise due skill, care and diligence in managing the business of BLL for which you were responsible in your controlled functions, by failing to
consider the potential for a conflict of interest to arise between BLL and its customers, as at paragraph 4.26, in breach of Statement of Principle 6;
(4) failed to take reasonable steps to ensure that the business of BLL for which you were responsible in your controlled functions complied with the relevant
requirements and standards of the regulatory system, particularly with regard to lending decisions, arrears handling and complaints handling in paragraphs
4.7 to 4.12, 4.13 to 4.17 and 4.20 to 4.22. respectively, in breach of Statement of Principle 7;
The nature, seriousness and impact of the breach in question DEPP 6.5.2G(2)
6.5 The FSA considers your conduct to be particularly serious because:
(1) your failings persisted over a period of approximately five years;
(2) you were aware that customers may not be being treated fairly, but did not take steps to intercede or investigate these matters; and
(3) through your conduct, customers, including those who already had impaired
credit histories, were put at risk of entering into unsuitable regulated mortgage
contracts, suffered unfair treatment and financial detriment.
*************************************
The fifth and the last of these five examples showing the FSA enforcing both their "Rules" and "Principles" will follow in the next post.
Friday, 24 June 2011
The FSA - In Action - 3/5
This is the third of 5 posts, which relate to the FSA taking action against firms which they regulate.
I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA to the firms or individual involved.
In each of these 5 posts I will include highlighted extracts.
1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.
2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself
However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.
As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.
In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)
However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.
And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".
You can find full details in the links for the full FSA Handbook I listed in an earlier post
*********************
Please read in full the Press Notice in this third example.
The Press Notice opens with the primary two aspects involved - a fine, and customer redress:
The Financial Services Authority (FSA) has today fined Redstone Mortgages Limited (Redstone) £630,000 for poor treatment of some customers facing mortgage arrears.
The firm has agreed to redress customers who were charged unfair and/or excessive charges while they were in arrears. It is estimated that the redress will cost the firm up to £500,000.
Whilst asking you to read the full document, here are some edited extracts:
The FSA has identified a number of serious failings by Redstone which occurred between 1 January 2007 and 5 August 2009 in relation to its mortgage arrears handling processes and in its dealings with customers in arrears.
These include:
Applying four charges to customers’ accounts that were unfair and/or excessive.
These were:
A fee for a returned direct debit which was charged regardless of how many times the direct debit had already been returned unpaid;
Margaret Cole, director of enforcement and financial crime, said:
"Many of Redstone’s customers were in a vulnerable position, having fallen into arrears on their mortgage payments, and firms should not charge such customers excessive and unfair fees. This is not how the FSA expects lenders to treat customers in arrears.
"Rather than assessing each customer’s personal and financial circumstances on an individual basis, the firm was applying a one size fits all approach by aiming to reduce arrears to less than two months.
"The FSA is committed to clamping down on mortgage lenders who fail to adhere to treating customers fairly rules. We are crystal clear about the standards we expect and will take tough actions against firms who breach these rules. "
************************
Now, let's look at the "Final Notice" in this example.
Again, I ask that you read the item fully, but here are some edited extracts:
1. THE PENALTY
1.1. The FSA gave Redstone Mortgages Limited (“Redstone”/”the Firm”) a Decision Notice on 8 July 2010 which notified the Firm that pursuant to section 206 of the Financial Services and Markets Act 2000 ("the Act"), the FSA had decided to impose a financial penalty of £630,000 on the Firm in respect of breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the Principles for Businesses (“the Principles”) and Rules 12.3.1 R, 12.5.2 R and 13.3.1 R in the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”) in the period between 1 January 2007 and 5 August 2009 (“the Relevant Period”).
2.1. The breaches of the Principles and MCOB Rules, which are described in more detail in section 4 below, relate to a number of serious failings by Redstone in relation to customers with a mortgage with the Firm who were in arrears.
2.3. Redstone breached Principle 6 during the Relevant Period in that it failed to pay due regard to the interests of its customers and treat them fairly. In particular, the following failings were identified in that Redstone:
(6) applied certain charges that were unfair and/or excessive.
2.4. Redstone also breached MCOB 12.3.1 R, 12.5.2 R and 13.3.1 R in relation to the facts
described at paragraph 2.3 above.
described at paragraph 2.3 above.
3.3. Redstone is an authorised person for the purposes of section 206 of the Act. A requirement imposed on a firm includes the Principles and Rules made under section 138 of the Act, which provides that the FSA may make such rules applying to authorised persons as appear to be necessary or expedient for the purposes of protecting the interests of consumers.
3.5. Principle 6 provides that:
A firm must pay due regard to the interests of its customers and treat them fairly.
4.19. During the Relevant Period, Redstone imposed a number of excessive or unfair charges on customers in arrears.
4.20. The excessive or unfair charges imposed by Redstone were:
(1) a fee for a returned direct debit which was charged on each re-presentation of the direct debit by the Firm regardless of the number of times it had already been returned unpaid;
5.2. Principle 6 requires that a firm must pay due regard to the interests of its customers and treat them fairly. In doing so, firms should ensure that customers are treated fairly if they are in arrears with their mortgage by:
(1) being flexible in considering a customer’s personal and financial circumstances
5.4. In addition, Redstone did not treat its customers fairly as a result of applying charges and fees to a customer’s account that were excessive and/or unfair.
5.5. The Firm’s failings resulted in some customers incurring excessive or unfair costs and accruing arrears that could have been avoided had Redstone adopted a more flexible and fair approach to arrears management that properly took into account a customer’s personal and financial circumstances.
***************************
The fourth of these five examples showing the FSA enforcing both their "Rules" and "Principles" will follow in the next post.
Thursday, 23 June 2011
The FSA - In Action - 2/5
This is the second of 5 posts, which relate to the FSA taking action against firms which they regulate.
I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA to the firms or individual involved.
In each of these 5 posts I will include highlighted extracts.
1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.
2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself
However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.
As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.
In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)
However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.
And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".
You can find full details in the links for the full FSA Handbook I listed in an earlier post
*********************
Please read in full the Press Notice in this second example.
It involves Kensington Mortgage Company Limited who were fined £1.225 million for unfair treatment of some customers in arrears and will pay estimated £1.066 million customer redress.
Here however are some edited extracts:
The firm has agreed to redress customers who were in arrears and charged specific unfair and/or excessive charges. It is estimated that the redress will cost the firm up to £1.066 million.
The FSA has identified a number of serious failings by Kensington which occurred between 1 January 2007 and 31 October 2008 in relation to its mortgage arrears handling processes and in its dealings with customers in arrears.
Applying charges to customers' accounts that were unfair and/or excessive. These were:
A fee for a returned direct debit which was charged regardless of how many times the direct debit had already been returned unpaid;
An excessive fee for cancelled direct debits which did not reflect administrative costs;
Margaret Cole, director of enforcement and financial crime, said:
"This case should serve as a strong reminder to firms dealing with retail customers, especially customers in a vulnerable position such as those with mortgage arrears, that the FSA will take robust action where it sees that customers are not treated fairly. Retail firms which fail in their obligations to customers should expect not only a substantial fine but also that they will have to pay back customers who have been disadvantaged."
***********************
Now, let's look at the "Final Notice" in this example.
Again, I ask that you read the item fully, but here are some edited extracts:
THE PENALTY
1.1. The FSA gave Kensington Mortgage Company Limited (“Kensington”/”the Firm”) a Decision Notice on 9 April 2010 which notified the Firm that pursuant to section 206 of the Financial Services and Markets Act 2000 ("the Act"), the FSA had decided to impose a financial penalty of £1.225 million on the Firm in respect of breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the Principles for Businesses (“the Principles”) and Rules 12.3.1 R, 12.5.1 R and 13.3.1 R in the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”) in the period between 1 January 2007 and 31 October 2008 (“the Relevant Period”).
2.1. The breaches of the Principles and MCOB Rules, which are described in more detail in section 4 below, relate to a number of serious failings by Kensington in relation to customers with a mortgage with the Firm who were in arrears.
2.3. Kensington breached Principle 6 during the Relevant Period in that it failed to pay due regard to the interests of certain of its customers and treat them fairly. In particular, the following failings were identified in that the Firm:
(3) did not have an appropriate cost-based approach to the calculation of certain charges and applied three charges to customers’ accounts that were unfair
and/or excessive.
2.4. Kensington also breached MCOB 12.3.1 R, 12.5.1 R and 13.3.1 R in relation to the facts described at paragraph 2.3 above.
2.5. As a result of the breaches of Principles 3 and 6, Kensington failed to treat some of its customers fairly.
3.3. Kensington is an authorised person for the purposes of section 206 of the Act. A requirement imposed on a firm includes the Principles and Rules made under section 138 of the Act, which provides that the FSA may make such rules applying to authorised persons as appear to be necessary or expedient for the purposes of protecting the interests of consumers.
3.5. Principle 6 provides that:
A firm must pay due regard to the interests of its customers and treat them fairly.
3.7. MCOB 12.5.1 R provides:
A firm must ensure that any regulated mortgage contract , home reversion plan or regulated sale and rent back agreement that it enters into does not impose, and cannot be used to impose, excessive charges upon a customer.
4.17. The report contained the following section on (*) TCF:
“Everyone interviewed had an awareness of TCF. However, the call handlers’ ability to articulate what this meant within an arrears or repossessions environment was weak. Whilst it is acknowledged that call handlers operate within set mandates and procedures within which the fair treatment of customers is considered, a more detailed knowledge and understanding of how to apply TCF would be beneficial. This will enable call handlers to recognise when to refer customers whose circumstances may have TCF implications and fall outside of the established process.”
4.30. As a result of these failings, the Firm failed to treat certain of its customers fairly.
Arrears charges
4.31. During the Relevant Period, Kensington imposed a number of excessive or unfair charges on customers in arrears.
4.32. The excessive or unfair charges imposed by Kensington were:
(1) a fee for a returned direct debit which was charged on each re-presentation of the direct debit by the Firm regardless of the number of times it had already been returned unpaid;
(2) a fee for a cancelled direct debit, which was excessive in light of the associated administration costs;
4.33. The above charges were excessive or and/or unfair because they did not accurately reflect the actual administrative costs incurred by the Firm or were otherwise unfairly applied to the customer.
Again, I ask that you read the item fully, but here are some edited extracts:
THE PENALTY
1.1. The FSA gave Kensington Mortgage Company Limited (“Kensington”/”the Firm”) a Decision Notice on 9 April 2010 which notified the Firm that pursuant to section 206 of the Financial Services and Markets Act 2000 ("the Act"), the FSA had decided to impose a financial penalty of £1.225 million on the Firm in respect of breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the Principles for Businesses (“the Principles”) and Rules 12.3.1 R, 12.5.1 R and 13.3.1 R in the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”) in the period between 1 January 2007 and 31 October 2008 (“the Relevant Period”).
2.1. The breaches of the Principles and MCOB Rules, which are described in more detail in section 4 below, relate to a number of serious failings by Kensington in relation to customers with a mortgage with the Firm who were in arrears.
2.3. Kensington breached Principle 6 during the Relevant Period in that it failed to pay due regard to the interests of certain of its customers and treat them fairly. In particular, the following failings were identified in that the Firm:
(3) did not have an appropriate cost-based approach to the calculation of certain charges and applied three charges to customers’ accounts that were unfair
and/or excessive.
2.4. Kensington also breached MCOB 12.3.1 R, 12.5.1 R and 13.3.1 R in relation to the facts described at paragraph 2.3 above.
2.5. As a result of the breaches of Principles 3 and 6, Kensington failed to treat some of its customers fairly.
3.3. Kensington is an authorised person for the purposes of section 206 of the Act. A requirement imposed on a firm includes the Principles and Rules made under section 138 of the Act, which provides that the FSA may make such rules applying to authorised persons as appear to be necessary or expedient for the purposes of protecting the interests of consumers.
3.5. Principle 6 provides that:
A firm must pay due regard to the interests of its customers and treat them fairly.
3.7. MCOB 12.5.1 R provides:
A firm must ensure that any regulated mortgage contract , home reversion plan or regulated sale and rent back agreement that it enters into does not impose, and cannot be used to impose, excessive charges upon a customer.
4.17. The report contained the following section on (*) TCF:
“Everyone interviewed had an awareness of TCF. However, the call handlers’ ability to articulate what this meant within an arrears or repossessions environment was weak. Whilst it is acknowledged that call handlers operate within set mandates and procedures within which the fair treatment of customers is considered, a more detailed knowledge and understanding of how to apply TCF would be beneficial. This will enable call handlers to recognise when to refer customers whose circumstances may have TCF implications and fall outside of the established process.”
4.30. As a result of these failings, the Firm failed to treat certain of its customers fairly.
Arrears charges
4.31. During the Relevant Period, Kensington imposed a number of excessive or unfair charges on customers in arrears.
4.32. The excessive or unfair charges imposed by Kensington were:
(1) a fee for a returned direct debit which was charged on each re-presentation of the direct debit by the Firm regardless of the number of times it had already been returned unpaid;
(2) a fee for a cancelled direct debit, which was excessive in light of the associated administration costs;
4.33. The above charges were excessive or and/or unfair because they did not accurately reflect the actual administrative costs incurred by the Firm or were otherwise unfairly applied to the customer.
********************
(*) TCF - short for "Treating Customers Fairly" - an FSA requirement for all those authorised by them.
********************
The third of these five examples showing the FSA enforcing both their "Rules" and "Principles" will follow in the next post.
Thursday, 16 June 2011
The FSA - In Action - 1/5
This is the first of 5 posts, which relate to the FSA taking action against firms which they regulate.
I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA to the firms or individual involved.
In each of these 5 posts I will include highlighted extracts.
1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.
2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself
However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.
As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.
In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)
However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.
And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".
You can find full details in the links for the full FSA Handbook I listed in an earlier post
********************************
Let's make a start with the first Press Release-
From here - please do read in full.
Some extracts:
The Financial Services Authority (FSA) has today announced it has fined GMAC -RFC Limited (GMAC-RFC) £2.8million for failing to treat customers fairly and secured redress of up to £7.7million (plus interest) for over 46,000 mortgage customers.
Between 31 October 2004 and 30 November 2008, a number of serious failings by GMAC-RFC were identified in relation to its dealings with customers experiencing arrears and repossessions. These include:
- excessive and unfair charges for customers that did not reflect administration costs;
- proposing repayment plans that did not always consider a customer’s individual circumstances;
Margaret Cole, director of Enforcement and Financial Crime, said:
“This case shows credible deterrence in action. It is an excellent example of what the FSA’s more intrusive approach can achieve for consumers, and it reflects what we said in our Mortgage Market Review last week about unfair mortgage arrears charges.
Now, let's move to the "Final Notice" involved - please again read in full
Some extracts:
TAKE NOTICE: the Financial Services Authority of 25 the North Colonnade, Canary Wharf, London E14 5HS (“the FSA”) gives you final notice about a requirement to pay a financial penalty:
1. THE PENALTY
1.1. The FSA gave GMAC-RFC Limited (“GMAC”/“the firm”) a Decision Notice on 26 October 2009 which notified the firm that pursuant to section 206 of the Financial Services and Markets Act 2000 (“the Act”), the FSA had decided to impose a financial penalty of £2.8 million on the firm. This penalty is imposed for breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the Principles for Businesses (“the Principles”) and Rules 12.4.1 R and 13.3.1 R in the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”) in the period between 31 October 2004 and 30 November 2008 (“the Relevant Period”).
1.3. GMAC will also carry out a customer redress programme with a view to providing redress to those customers who were charged specific excessive and unfair charges (i.e. charges that were not a reasonable estimate of the costs of the additional administration required as a result of the customer being in arrears) in respect of their mortgage account. The estimated cost of redress for the period 1 November 2004 to 31 August 2009 is up to £7.7 million, plus interest, for both regulated mortgage contracts and buy-to-let contracts.
2.1. The breaches of the Principles and MCOB Rules, which are described in more detail in section 4 below, relate to a number of serious and sustained failings by GMAC in its dealings with some of its customers in arrears or facing repossession, in relation to their mortgage with GMAC.
2.3. The firm breached Principle 6 during the Relevant Period in that it failed to pay due regard to the interests of its customers and treat them fairly. In particular, the following failings were identified in that GMAC:
(1) failed to ensure that mortgage servicing staff had an adequate understanding of and implemented the requirement to treat customers fairly in handling its mortgage arrears and repossessions;
(2) until late 2008, focussed on the collection of payment of arrears over a short period of time within fixed mandates, rather than always establishing a suitable arrangement based on the customer’s individual circumstances;
(3) applied certain charges to a customer’s account that were unfair in that they did not accurately reflect the actual cost of administering an account in arrears;
(4) had not arrived at a cost-based approach to the calculation of its arrears charges and therefore could not be sure that they were reasonable compared to the actual cost incurred;
3. RELEVANT STATUTORY PROVISIONS AND GUIDANCE
3.1. The FSA’s statutory objectives are set out in section 2(2) of the Act. The relevant objectives for the purpose of this case are maintaining market confidence and the protection of consumers.
3.2. Section 206 of the Act provides:
(1) If the Authority considers that an authorised person has contravened a requirement imposed on him by or under this Act, it may impose on him a penalty, in respect of the contravention, of such amount as it considers appropriate.
3.3. GMAC is an authorised person for the purposes of section 206 of the Act. A requirement imposed on a firm includes the Principles and Rules made under section 138 of the Act, which provides that the FSA may make such rules applying to authorised persons as appear to be necessary or expedient for the purposes of protecting the interests of consumers.
3.5. Principle 6 provides that:
A firm must pay due regard to the interests of its customers and treat them fairly.
3.6. MCOB 12.4.1 R provides:
(1) A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, a charge for arrears on a customer except where that charge is a reasonable estimate of the cost of the additional administration required as a result of the customer being in arrears.
Arrears charges
4.16. GMAC imposed certain charges related to activities carried out whilst the customer was in arrears, in circumstances that resulted in the unfair treatment of customers.
5.5. In addition, GMAC did not treat its customers fairly as a result of applying certain charges and fees to customers’ accounts that were unfair as they did not accurately reflect the additional cost of administering an account in arrears in breach of MCOB 12.4.1R and 13.3.1 R.
5.6. This resulted in some customers incurring excessive and unfair charges (i.e. charges that were not a reasonable estimate of the costs of the additional administration required as a result of the customer being in arrears) and accruing additional costs that could have been avoided had GMAC adopted a more flexible and fairer approach to arrears management tailored to the customer’s individual circumstances.
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The second of these five examples will follow in the next post.
The FSA - In Action - The legal basis for that action.
There may be those reading this blog who have little knowledge of the FSA, and many who have perhaps no knowledge of its powers, and how it uses them.
In my last post I had to briefly explain "MCOB" and "BCOBS", many of the posts that follow contain references like that - which if you have day to day dealings with such terms they will not present any problems. However, if they are new to you, perhaps these notes will help - I am not convinced they will, but I hope so.
First, a link to the essential facts about the FSA, as presented by the FSA.
For my purposes, some in a general sense, some more specifically,these extracts are important, including the items I have highlighted:
What is the FSA?
We are the main statutory regulator for the UK financial services industry. We were established by an Act of Parliament in 2000 and formally gained our powers on 1 December 2001. We regulate some 29,000 firms, which includes EEA firms passporting into the UK, ranging from global investment banks to very small businesses, and around 165,000 individuals. This industry contributes 6.8% of UK GDP and employs over 1.1 million people, providing products and services to millions of consumers.
What is the FSA's purpose?
We were given five specific, and equal, objectives by Parliament. These are: maintaining market confidence; promoting public understanding of the financial system; contributing to the protection and enhancement of the stability of the UK financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
In practice, this means that we want to make markets work effectively to deliver benefits to firms and consumers. We operate a risk-based approach concentrating on the big risks and accepting that some failure neither can, nor should, be avoided. Potential risks are prioritised, using impact and probability analysis, and we then decide on an appropriate regulatory response – in other words, what approach we will take and how much resource we will allocate to mitigating the risk.
Who decides what the FSA regulate?
The scope of our authority was initially set out in the Financial Services and Markets Act 2000 (FSMA). Since then, Parliament has extended our responsibilities to include, for example, mortgage lending and insurance broking.
Some financial services, such as consumer credit and occupational pension schemes, are not regulated by the FSA. In addition, some businesses that may appear to be offering financial services, such as buy-to-let property clubs or compensation claim handlers, fall outside the FSA's scope.
Only Parliament currently has the authority to add to our remit.
In far more specific terms, the items to follow will make reference to various Sections of the FSMA, and how they have been applied by the FSA; they will make reference to "Principles" and to items like the "MCOB" I mentioned earlier.
For those who wish to source those references as they appear, the FSA Handbook is the place to go.
I do strongly recommend that you click on that link (take a very deep breath before doing so) because you are about to see one of THE most complicated inter-linking set of rules, principles, and requirements that can be imagined. That is why in an earlier post - I said this ain't easy.
I hope that this short explanation may help - but even providing it - ain't easy.
The FSMA gave the FSA powers. The FSA have established what is basically a "heirarchical" set of rules - some are "high level" and apply to all the firms that gain FSA authorisation to do business.
Others are best described as "activity specific" requirements, and vary in their nature between say Banks, or Investment Companies, or IFAs.
Thus working down that hierarchical structure you may see PRIN: SYSC: COND: APER: COBS: ICOBS: MCOB: BCOBS: CASS: MAR. Easy peasy - it ain't!
This might give you a taste ( a good or bad taste - I don't know):
The Full Handbook - High Level Standards
Principles for Businesses - the fundamental obligations of all firms under the regulatory system - PRIN
Senior Management Arrangements, Systems and Controls - the responsibilities of directors and senior management - SYSC
Threshold Conditions - the minimum standards for becoming and remaining authorised - COND
Statements of Principle and Code of Practice for Approved Persons - the fundamental obligations of approved persons - APER
One which will figure in the items that follow are these - Principles for Businesses - the fundamental obligations of all firms under the regulatory system. Details - in perhaps overwhelming detail - here
And if you want to gain an insight into MCOB, or BCOBS, or any of the other COBS - go here
Enough already - I am in no way sure that will help many - but that is the background against which the following posts become relevant, and will in due course play their part in establishing the link between the FSA and the question over bank charges being fair or otherwise.
They will in part lead to this:
Let's ask Lord Turner and the FSA this very simple question:
Do you believe that the charges levied by Banks on their customers were and are fair or unfair?
Yes, I know I keep repeating that - but at the end of these posts, in the conclusion of this blog - I hope I may not be the only person addressing that question to Lord Turner and the FSA.
In my last post I had to briefly explain "MCOB" and "BCOBS", many of the posts that follow contain references like that - which if you have day to day dealings with such terms they will not present any problems. However, if they are new to you, perhaps these notes will help - I am not convinced they will, but I hope so.
First, a link to the essential facts about the FSA, as presented by the FSA.
For my purposes, some in a general sense, some more specifically,these extracts are important, including the items I have highlighted:
What is the FSA?
We are the main statutory regulator for the UK financial services industry. We were established by an Act of Parliament in 2000 and formally gained our powers on 1 December 2001. We regulate some 29,000 firms, which includes EEA firms passporting into the UK, ranging from global investment banks to very small businesses, and around 165,000 individuals. This industry contributes 6.8% of UK GDP and employs over 1.1 million people, providing products and services to millions of consumers.
What is the FSA's purpose?
We were given five specific, and equal, objectives by Parliament. These are: maintaining market confidence; promoting public understanding of the financial system; contributing to the protection and enhancement of the stability of the UK financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
In practice, this means that we want to make markets work effectively to deliver benefits to firms and consumers. We operate a risk-based approach concentrating on the big risks and accepting that some failure neither can, nor should, be avoided. Potential risks are prioritised, using impact and probability analysis, and we then decide on an appropriate regulatory response – in other words, what approach we will take and how much resource we will allocate to mitigating the risk.
Who decides what the FSA regulate?
The scope of our authority was initially set out in the Financial Services and Markets Act 2000 (FSMA). Since then, Parliament has extended our responsibilities to include, for example, mortgage lending and insurance broking.
Some financial services, such as consumer credit and occupational pension schemes, are not regulated by the FSA. In addition, some businesses that may appear to be offering financial services, such as buy-to-let property clubs or compensation claim handlers, fall outside the FSA's scope.
Only Parliament currently has the authority to add to our remit.
In far more specific terms, the items to follow will make reference to various Sections of the FSMA, and how they have been applied by the FSA; they will make reference to "Principles" and to items like the "MCOB" I mentioned earlier.
For those who wish to source those references as they appear, the FSA Handbook is the place to go.
I do strongly recommend that you click on that link (take a very deep breath before doing so) because you are about to see one of THE most complicated inter-linking set of rules, principles, and requirements that can be imagined. That is why in an earlier post - I said this ain't easy.
I hope that this short explanation may help - but even providing it - ain't easy.
The FSMA gave the FSA powers. The FSA have established what is basically a "heirarchical" set of rules - some are "high level" and apply to all the firms that gain FSA authorisation to do business.
Others are best described as "activity specific" requirements, and vary in their nature between say Banks, or Investment Companies, or IFAs.
Thus working down that hierarchical structure you may see PRIN: SYSC: COND: APER: COBS: ICOBS: MCOB: BCOBS: CASS: MAR. Easy peasy - it ain't!
This might give you a taste ( a good or bad taste - I don't know):
The Full Handbook - High Level Standards
Principles for Businesses - the fundamental obligations of all firms under the regulatory system - PRIN
Senior Management Arrangements, Systems and Controls - the responsibilities of directors and senior management - SYSC
Threshold Conditions - the minimum standards for becoming and remaining authorised - COND
Statements of Principle and Code of Practice for Approved Persons - the fundamental obligations of approved persons - APER
One which will figure in the items that follow are these - Principles for Businesses - the fundamental obligations of all firms under the regulatory system. Details - in perhaps overwhelming detail - here
And if you want to gain an insight into MCOB, or BCOBS, or any of the other COBS - go here
Enough already - I am in no way sure that will help many - but that is the background against which the following posts become relevant, and will in due course play their part in establishing the link between the FSA and the question over bank charges being fair or otherwise.
They will in part lead to this:
Let's ask Lord Turner and the FSA this very simple question:
Do you believe that the charges levied by Banks on their customers were and are fair or unfair?
Yes, I know I keep repeating that - but at the end of these posts, in the conclusion of this blog - I hope I may not be the only person addressing that question to Lord Turner and the FSA.
Wednesday, 15 June 2011
The FSA - In Action
In my last post, I ended with this comment:
But what I want to do at this juncture is to complete this comparison of the FSA -v- the OFT. - to offer the evidence that contrasts what the OFT were thinking they could do - the threshold charge - and compare that not with what the FSA "thought" they could do, but what they have actually done.
If you refer back to that last post you will see me offer the comment that in my opinion the OFT approach of establishing a "threshold charge" was too narrow. But that is just an opinion - I believe it to be justified, but you may not share that opinion.
Be that as it may, what I want to do now is list an extensive range of evidence which shows how the FSA have dealt with, and to this day still approach the question of charges, their approach to how customers should be treated, and their approach to those levying any charges.
No, I am not yet attempting to link the FSA and Bank charges. I could do so at this juncture, but this blog is intended to be "a body of evidence", just as would be presented in a trial. It follows a sequence, and this series of posts is of great importance.
I have to demonstrate through the evidence which follows that the FSA have a detailed, consistent, and already firmly established basis for addressing factors such as unfair charges, the treatment of consumers, and their response to financial companies who do not conform to the requirements imposed on them by the FSA.
Now, for some reading this, and who have a detailed knowledge of the whole subject of bank charges, I may be accused of drawing this evidence against the subject of mortgages, and that I cannot therefore apply this evidence to the question of bank charges.
I would ask those - please bear with me - this evidence is very important when I do reach the question of bank charges and link the issues involved very directly to the FSA, for these reasons:
1) - Most importantly because if we can establish very detailed evidence of how the FSA think - and more importantly act - in matters such as these - then when I offer the evidence of why that final link between the FSA and bank charges is established we have the firmest platform possible for this question:
"The FSA gave GMAC-RFC Limited (“GMAC”/“the firm”) a Decision Notice on 26 October 2009 which notified the firm that pursuant to section 206 of the Financial Services and Markets Act 2000 (“the Act”), the FSA had decided to impose a financial penalty of £2.8 million on the firm. This penalty is imposed for breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the Principles for Businesses (“the Principles”) and Rules 12.4.1 R and 13.3.1 R in the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”) in the period between 31 October 2004 and 30 November 2008 (“the Relevant Period”).
GMAC will also carry out a customer redress programme with a view to providing redress to those customers who were charged specific excessive and unfair charges (i.e. charges that were not a reasonable estimate of the costs of the additional administration required as a result of the customer being in arrears) in respect of their mortgage account. The estimated cost of redress for the period 1 November 2004 to 31 August 2009 is up to £7.7 million, plus interest, for both regulated mortgage contracts and buy-to-let contracts."
My next post will provide the links to that item, offer some comments, and perhaps most importantly some much needed explanations of some of the terms used, eg., when you read the words "MCOB", that refers to the "Mortgage - Conduct of Business" Rules.
Be aware - just for now - that there are also "BCOB" - "Banking - Conduct of Business" Rules - they will form part of the link we need when we address bank charges.
Just please remember my warning - the next long series of posts are not for the faint hearted - but they are vital.
But what I want to do at this juncture is to complete this comparison of the FSA -v- the OFT. - to offer the evidence that contrasts what the OFT were thinking they could do - the threshold charge - and compare that not with what the FSA "thought" they could do, but what they have actually done.
If you refer back to that last post you will see me offer the comment that in my opinion the OFT approach of establishing a "threshold charge" was too narrow. But that is just an opinion - I believe it to be justified, but you may not share that opinion.
Be that as it may, what I want to do now is list an extensive range of evidence which shows how the FSA have dealt with, and to this day still approach the question of charges, their approach to how customers should be treated, and their approach to those levying any charges.
No, I am not yet attempting to link the FSA and Bank charges. I could do so at this juncture, but this blog is intended to be "a body of evidence", just as would be presented in a trial. It follows a sequence, and this series of posts is of great importance.
I have to demonstrate through the evidence which follows that the FSA have a detailed, consistent, and already firmly established basis for addressing factors such as unfair charges, the treatment of consumers, and their response to financial companies who do not conform to the requirements imposed on them by the FSA.
Now, for some reading this, and who have a detailed knowledge of the whole subject of bank charges, I may be accused of drawing this evidence against the subject of mortgages, and that I cannot therefore apply this evidence to the question of bank charges.
I would ask those - please bear with me - this evidence is very important when I do reach the question of bank charges and link the issues involved very directly to the FSA, for these reasons:
1) - Most importantly because if we can establish very detailed evidence of how the FSA think - and more importantly act - in matters such as these - then when I offer the evidence of why that final link between the FSA and bank charges is established we have the firmest platform possible for this question:
Let's ask Lord Turner and the FSA this very simple question:
Do you believe that the charges levied by Banks on their customers were and are fair or unfair?
2) - the evidence I will lead does not involve the OFT, and it further allows me to demonstrate through the evidence that follows that it was the "blizzard" of Concordats between the FSA and the OFT that has caused consumer detriment, and why we still do not have a answer to whether bank charges are fair or otherwise.
3) - because the focus of attention over the issue of bank charges has always been with the OFT, it has left the powers granted to the FSA under the Financial Services and Markets Act (FSMA) to be left with little if any scrutiny. This blog is dedicated to reversing that position.
I should at this stage offer a warning - the items of evidence that follow are extensive and detailed, and will follow item after item after item.
For those who wish an easy answer, a quick way forward - perhaps these will not be for you?
For those, and I am one, who wish a fully documented trail of hard evidence, and for it all to be on the record, open to anyone to read in whatever manner they choose, open to challenge, open to argument, then these items are vital.
Some items will be drawn from the FSA website, some from the Financial Services - Consumer Panel. Some date back a few years, some are drawn from documents only appearing in the last few days.
They will allow those who view the evidence to assess for themselves whether the approach used by and acted upon by the FSA is both much wider than that adopted by the OFT, and whether it is consistent.
In my next post, I will post the first item (in a long list of items). I will, as usual, use extracts to highlight what for me is important - but, also as usual, will also provide the links to the evidence itself so that it can be read in full.
To give you an idea of what some of the items may involve, these are two very small, very limited extracts from a 14 page "Final Notice" issued by the FSA, using their powers under the FSMA:
"The FSA gave GMAC-RFC Limited (“GMAC”/“the firm”) a Decision Notice on 26 October 2009 which notified the firm that pursuant to section 206 of the Financial Services and Markets Act 2000 (“the Act”), the FSA had decided to impose a financial penalty of £2.8 million on the firm. This penalty is imposed for breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the Principles for Businesses (“the Principles”) and Rules 12.4.1 R and 13.3.1 R in the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”) in the period between 31 October 2004 and 30 November 2008 (“the Relevant Period”).
GMAC will also carry out a customer redress programme with a view to providing redress to those customers who were charged specific excessive and unfair charges (i.e. charges that were not a reasonable estimate of the costs of the additional administration required as a result of the customer being in arrears) in respect of their mortgage account. The estimated cost of redress for the period 1 November 2004 to 31 August 2009 is up to £7.7 million, plus interest, for both regulated mortgage contracts and buy-to-let contracts."
My next post will provide the links to that item, offer some comments, and perhaps most importantly some much needed explanations of some of the terms used, eg., when you read the words "MCOB", that refers to the "Mortgage - Conduct of Business" Rules.
Be aware - just for now - that there are also "BCOB" - "Banking - Conduct of Business" Rules - they will form part of the link we need when we address bank charges.
Just please remember my warning - the next long series of posts are not for the faint hearted - but they are vital.
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