Secured loans regulation is transferred to fsa
15th April 2012
Secured loans will no longer be regulated by the Office of Fair Trading. Instead they will be regulated by the Financial Services Authority. This new move will ensure that there is just one regulator for residential mortgage lending.
“The FSA’s powers will transfer to the Consumer Protection and Markets Authority at the end of 2012. That is when the regulation of secured loans will be implemented into the FSA. The reasons given for the change include the fact that it will simplify the regulatory environment for borrowers and lenders. It will also help to ensure that there is adequate standard of consumer protection.
Between the years 2007-2009, borrowers suffered a lot of insecurity due to disruption caused by a fast withdrawal of products from lenders. The question is, will this change cost consumers more in the long run?
It is estimated that the FSA will incur one off costs of £5 million for introducing the regulation of residential mortgages. After the one off cost, FSA will also need to pay ongoing costs each year of £7.6 million. There are fixed costs involved such as changing over the system and these total £2 million.
The Head of Consumer Finance at Finance and Leasing Association, Fiona Hoyle, states:
“This will be especially complex for lenders’ back book of loans which were granted under one regime and will now be regulated under a completely new one. A sensible time table will be essential.”
The Director of the Association of Finance Brokers, Robert Sinclair, also states:
“We fully support this announcement as we have long been calling for an alternative regulatory regime under FSA. This will benefit intermediaries, lenders and consumers. However, we must ensure that the implementation of this new responsibility is carried out in a measured way. We will therefore be working closely with FSA and its successor body to make certain that the new regulatory regime is implemented in a proportionate way.”
The move will affect second charge borrowers of section 140 of the Consumer Credit Act 2006. What many people do not realise is that this change could have a detrimental effect on second charge borrowers. This is because the FSA does not have a powerful piece of legislation.
There is some confusion over whether the FSA will be taking on buy to let mortgages. It is also unclear how the change will affect the current system of duel regulation.
The Financial Secretary to the Treasury, Mark Hoban, states:
“Giving the FSA responsibility for the whole residential mortgage market will simplify the mortgage regulation landscape for consumers and lenders. This will ensure that existing second charge mortgage borrowers who fall into arrears or face repossession on both first and second charge mortgages benefit from being regulated by a single organisation, maximising consumer protection and ensuring a more coordinated approach between lenders.”
In Northern Ireland all registered housing associations will not be regulated by the FSA. It is expected that this new regulatory regime will not be put into practice until 2012.
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