Opinion Former Article

Challenges ahead for consumers as financial services changes, warns BSA Chairman

Consumers will face increasing challenges as the fall-out from the financial crisis and economic pressures continue, warns out-going BSA Chairman, Peter Griffiths. These factors, combined with ever more one size fits all regulation across the financial services sector are likely to prompt changes in product supply and an increase in the application hurdles facing consumers, adding to existing pressures on households.

Speaking today at the BSA's annual conference in Manchester, Griffiths expressed concern about the unintended consequences of new regulation which, coupled with general regulatory overload could see thousands of consumers facing a new kind of financial exclusion.

One example of the potential for unintended consumer consequence comes from the Retail Distribution Review (RDR). The laudable twin intentions of this regulation; to increase professionalism and move to a fee-based system for financial advice, may see many of the UK population effectively excluded from financial advice if they are unwilling or unable to pay a fee. This will put pressure on the few free advice services in the UK, or see consumers who need advice going without.

Griffiths sees the Mortgage Market Review (MMR) as another example where unintended consequence may adversely impact the UK public. He believes that despite all of the positive changes made by the FSA, the risk of a substantial number of mortgage borrowers being 'trapped' remains. This issue relates to existing mortgage borrowers who may have a spotless payment record but whose financial circumstances mean they can't meet the new affordability criteria that lenders will be required to apply. He called on the FSA to allow lenders to develop an exceptions policy, to be agreed with the regulator, which will allow them more latitude to help existing borrowers who can't demonstrate affordability under final MMR rules.

He also warned that once the MMR is implemented the mortgage application process will change with both lenders and consumers having to get used to far more detailed, and some may believe intrusive questioning. The process is also likely to take substantially longer - a generally higher hurdle for home ownership.

The impacts of the MMR are already being felt, with regulatory uncertainty over the treatment of interest-only mortgages being at least partly responsible for some lenders reducing or withdrawing access to this type of mortgage. This impact will almost certainly ripple right through the market.

Commenting he said: "The intended results of these two pieces of regulation are laudable. No one could argue in favour of practices such as coupling abundant money supply with lax credit policy, policies that were prevalent in certain sectors of the mortgage market. Unfortunately, the unintended consequences of new regulation could see swathes of the UK population far less able to access financial advice and finding it much harder to get a mortgage. The hoops lenders will have to get consumers to jump through when they apply for a mortgage are getting higher, in fact not just high, but in some instances flaming. A consumer backlash could well follow.

"On the business front, the mutual sector has often been criticised in the past for its aversion to risk and sensible lending practices. Standard & Poor's said in a report last month that building societies had survived the financial crisis in better health than the banking industry as a whole, perhaps this is why. Looking ahead, many in the sector have indicated that they intend to increase their lending activity this year and the sector is certainly open for business. Mutual lenders are primarily funded through low-risk retail deposits and with the general regulatory overload that is now prevalent, hard decisions are having to be made; is that £1 of retail savings better used on increasing liquidity, lending to a first time buyer or on safer, less capital intensive lending to an established homeowner? What is certain is that it can only be used once. The views of the FSA, focused on regulation and prudence and the Government, focused on homes and growth, are at odds here."

"Despite the potential rocks in the road that we will have to navigate, I am optimistic that the mutual sector has an edge, as banks focus ever more on de-leveraging and short term delivery to shareholders. It is throwing the advantages of the mutual sector, including our ability, with no shareholders, to plan for the longer term; plus the far more customer centric approach that we have to business, into sharp relief. Already, in the first quarter of 2012, mutual lenders have outperformed the mortgage market as a whole with gross lending up by 40% compared to a market uplift of 11% over the first quarter last year."  

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