Client Briefing: Compliance, Conduct and Risk Bulletin November 2015

1. Lenders concerned over Scottish rent controls

The Scottish government's Private Tenancies Bill, published in late October, seeks to put an end to short assured tenancies, introduce rent control zones and remove landlords' rights to repossess on a no-fault basis.

A spokesman from the CML said lenders "continue to have concerns about some of the proposals for a new tenancy in the private sector". He said: "One over-arching concern is that well-intentioned proposals will have unintended consequences and discourage landlords from investing in the sector. That could lead to a shortage of property, less choice for tenants and push rents higher." He highlighted that there is also still some uncertainty about where rent controls would apply, and how they would operate which he said "will deter landlords".  He added: "We are also concerned that in setting fixed rents, some landlords may not anticipate all their costs and may therefore have problems in keeping up with their mortgage payments. There is also a risk that uncertainty over costs may lead them to set rents at too high a level, to the detriment of the tenant."

The CML is calling for the introduction of a system similar to the receiver of rent in England and Wales. In cases where the tenant is paying the rent but the landlord isn't paying the rent, the tenant can make the payments directly to the lender. This would enable, in the CML’s view, mortgage commitments to be met, and give the tenant a better chance of staying in their home.

Among other things the Bill proposes to replace the short assured tenancy agreement with the private rented tenancy. This will replace a six-month initial tenancy agreement followed by a monthly rolling contract with a tenancy agreement that has no limit on tenure. The Bill will also introduce "rent pressure zones" where rents can be capped for a period up to five years if Scottish ministers deem that rents have risen "too much". Within rent pressure zones rent reviews for sitting tenants will be subject to caps of CPI + 1 + n where n is determined by ministers.

Grounds for repossession will also be restricted with landlords' rights to take possession where the tenant has not defaulted on the tenancy agreement scrapped completely. Landlords and lenders will still be able to take possession of a property on a restricted set of grounds including where the tenant defaults on rent or causes criminal damage to a property.

Ian Andrew, managing director of Nationwide's group intermediary sales, supported the views laid out by the CML and said: "Nationwide, through its specialist lending arm The Mortgage Works, continues to support measures that provide improved security for tenants in the private rental sector where desired. Our existing lending criteria and established support for longer term standard tenancies reflects this position. "Any reforms that protect tenants from unfair practice are positive, but we believe that any changes should balance the needs of tenants and flexibility of landlords effectively. The industry, as outlined by the CML, has been clear that it does not believe the Bill so far achieves this. "Our concern is that the current proposed changes could constrain investment in the private rented sector in Scotland and exacerbate rent inflation through a long term lack of supply. We believe more measured reform is necessary to improve the market, both for tenants and for landlords."

Charles Haresnape, group managing director for mortgages at Aldermore, said: "In general the Scottish Bill contains sensible measures, especially from a tenant's perspective. 

Find out more: Mortgage Introducer

2. Debt problems lead to mental health issues  

Research from Money Advice Service in conjunction with the UK Financial Capability Board has revealed that only half of families have any life cover, 21 million people don't have a modest £500 in savings to cover unexpected bills like replacing the fridge or mending the car, 19 million don't have an approach to budgeting that they feel works and around 8 million have problems with debt; of those, just one in six is seeking help.

As a result the two bodies have jointly published a 10-year Financial Capability Strategy which aims to improve people's ability to manage money well day to day, prepare for and manage life events, and deal with financial difficulties. Its focus will be on developing people's financial skills and knowledge as well as their attitudes and motivation. To address a "spend today rather than save for tomorrow" culture the strategy focuses on every key life stage and challenge: children and young people, young adults, working age people, savings, retirement planning, older people, and people in financial difficulties.

Specific actions will be delivered in Scotland, Wales and Northern Ireland.

Andy Briscoe, chairman of the Financial Capability Board, said: "Four out of ten adults are not in control of their finances, so for a great many people money is a constant source of worry and stress.” This is a problem first and foremost for the individuals concerned and for their families, but it also has wider implications for society and the economy. "The stubbornly low levels of financial capability in the UK can no longer be tolerated. Today we are calling for a fully collaborative approach to ensure we achieve the goals set out in the strategy over the next decade."

Find out more: Mortgage Introducer 

3. Financial Conduct Authority (FCA) notes credit card competition working fairly well but concern for customers in long-term debt

The Financial Conduct Authority (‘the FCA’) has published its interim report into the credit card market. The main finding of this report was that the FCA continues to be concerned about the scale of potentially problematic debt for customers who are only just above default levels. The FCA has noted that for such customers the market could work better for them. 

The FCA findings can be summarised as follows:

• Firms are now strongly competing in the credit card market, with firms offering a variety of products to meet costumers’ requirements. There have also been new entrants in the this market recently.
• They also found that customers do in fact shop around and thus greatly value the flexibility offered by the various firms.
• Customers in default on payments are clearly not profitable and firms tend to contact those regularly if they fail to meet payments. Yet those with persistent levels of debt or who do actually make minimum payments are actually profitable for firms and thus such firms have fewer incentives to help them. 

The FCA wants to make the market better for customers and so want measures to be brought in to help consumers discover the best deals. They also want firms to enable consumers to search the market without damaging their credit score.

They also want firms to help reduce problematic credit card debt in three ways. Firstly, they want measures to give customers more control over credit limits and utilisation. Secondly, they want to encourage customers to pay off their debt quicker when they can afford to do so. Finally, they want to see firms doing more to identify earlier those customers who may struggle to repay and take action to help them manage their repayments. 

Find out more: Financial Conduct Authority 

4. FCA Consultation: Future treatment of CCA regulated first charge mortgages 

The FCA has issued a consultation paper on the treatment of mortgage regulated by the Consumer Credit Act (mortgages pre-2004 that fall within the relevant financial threshold). This consultation paper is aimed at firms administering or performing variations on pre-2004 CCA first charge mortgages.

The FCA proposes making the administering of a regulated mortgage contract in relation to pre-2004 first charge CCA mortgages a regulated mortgage activity from March 2016 and the CCA will no longer generally apply.

It is proposed that the FCA should apply their existing Mortgages and Home Finance: Conduct of Business sourcebook to such firms in the same way that it applies to post-2004 first charge mortgages.

Annex 3 contains a list of questions aimed at firms and consumers with pre-2004 CCA mortgages. Responses should be submitted using an online form by 18^th December 2015.

Find out more: CP15/36: Future regulatory treatment of CCA regulated first charge mortgages

5. FCA Consultation: Regulatory fees and levies: policy proposals for 2016/17 

The FCA has issued a consultation paper on the fees and levies charged by the FCA.

Annex 1 contains a list of questions aimed at firms and other bodies. Responses should be submitted using the online form by 8^th January 2016.

The FCA’s proposals include:

• Creating a free-standing FCA fees handbook, separate from the PRA handbook (at the moment the two handbooks are linked);
• Recovering the data reporting costs associated with market monitoring under the Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instrument Regulation (MiFIR);
• Simplifying and clarifying transaction charges and annual fees for UK Listings Authority (UKLA) costs recovery, and to target cost recovery more effectively towards the demands made on UKLA's resources;
• Levying a 10% discount on fees paid by European Economic Area (EEA) branches that 'passport' into the UK market as home finance intermediaries under the Mortgage Credit Directive;

Bringing forward from 30 April to 1 April the 'on-account' date when larger firms pay the first instalment of their annual fees with effect from 1 April 2016.

Find out more: Financial Conduct Authority Policy 

6. FCA publish latest complaints data

Complaints show an overall decrease by 2.1% but banking and credit card complaints on the increase.

Find out more: Financial Conduct Authority