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
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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."
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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.
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(*) TCF - short for "Treating Customers Fairly" - an FSA requirement for all those authorised by them.
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The third of these five examples showing the FSA enforcing both their "Rules" and "Principles" will follow in the next post.
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