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
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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.
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