As of 1st April, if you are not considering secured loans for your capital raising clients, you may not only run the risk of not acting compliantly but also of breaching the FCA’s Treating Customers Fairly policy.
In the past many financial intermediaries have been reluctant to get involved with secured loans but with the arrival of the new regulation under the Financial Conduct Authority, brokers could now need to provide their customers with a secured loan and re-mortgage comparison, covering costs and suitability advice.
Features you might have to eventually put into place…
- Produce a written record proving you compared both products and why one option was selected over the other
- Demonstrate how you compared the loan repayments on a whole of market panel
- Produce a written record as to why a particular offer loan was selected
Picking through masses of criteria for each of the lenders, comparing the offers and documenting the process to effectively demonstrate your duty of care to your client is likely to take up a lot of your time. However, with access to the right systems and technology you will be able to gather information in an efficient, compliant way.
Rest assured there are many secured loan brokers who can provide you with the tools you need to offer secured loans safely and compliantly. There are secured loan sourcing systems available that will enable you to quickly compare information such as lender, product, representative APR, total amount repayable and monthly repayments to find the loan that’s right for your client. Plus, there are a couple of systems sophisticated enough to perform a “soft credit search” which means you can get an accurate quote without affecting your client’s credit profile.
To ensure you’re acting in a compliant manner, sourcing systems will also create an audit trail, readily providing you with evidence that you have explored the right product for your client. Our secured loans underwriting platform is designed to resolve much of these issues.
And be aware…
There has been a lot of confusion around the classifications of credit licences. Any packager/master broker without Category E (provision of debt counselling on a commercial basis) on their license cannot ‘counsel’ on debt consolidation.
The uncertainty as to whether ‘counsel’ constitutes as advice has been a problem for some. This is such a serious issue and to highlight this, there have been different stances from the lenders’ legal departments to highlight how they will be interpreting ‘counsel.’
Some lenders will no longer accept consolidation cases from packagers/ master brokers who do not possess Category E within their permissions. While others will accept consolidation deals, providing a Terms of Business letter is signed by the borrower, confirming no advice was given.
Some feel if a customer is looking to consolidate their unsecured debts, this would more than likely include a discussion about their credit commitments and if you do not hold the correct permissions, you aren’t in any position to “counsel” the customer regarding a loan for consolidation purposes.
Consolidation has historically been a major source of business for the secured loans sector and this is likely to have a major impact on those brokers operating in the sector without Category E if the FCA decides that second charge lending should come into line with the mortgage market in 2016. Luckily, for some firms, Category E is not a new concept.
This is by far the biggest regulatory change our industry has ever seen, and one thing is clear; Debt Counselling on a commercial basis is now a credit-related regulated activity and we feel that you cannot consider yourself to be adhering to FCA regulations if you do not hold the correct permissions to operate safely within the secured loans sector.
You can check the Interim Permission Consumer Credit Register here to find out if your secured loan packager has the required permissions in place.
