The much anticipated new set of rules as laid out in the mortgage market review are now in force and it’s been great to read over recent months, announcements from lenders confirming that they are ready, willing and able to fulfil these new requirements.
However, the issue as I see it isn’t that a new series of appropriate questions need to be asked and additional considerations undertaken, but as we have seen before, it is how lenders can evidence that these new rules have been followed to protect themselves now and in the future.
Evidence is crucial but how can you capture it and how can you analyse it? This is a challenge that has been facing the financial services sector for many years and one that sits against a backdrop of favouring the customer if no evidence can be proved. It seems to have been the case that the product provider is considered guilty unless they can prove otherwise.
In this vein, over recent years there has been an unprecedented level of fines issued by the FCA. Let’s put this into some sort of context; this is not about a few bad apples spoiling it for everyone else. During 2013 the total amount of fines was £474,138,738 and in just the first quarter of 2014 fines of £86,241,500 have already been levied.
I’m certainly not claiming that all these fines are unwarranted but many are founded on the inability for the lender or insurance company to provide evidence that an approved process was followed.
The scale of the challenge
The new affordability checks required by the Mortgage Market Review will be especially challenging. The MMR will require lenders to perform important new checks including a stress test for future affordability, and to prove that they have done so. As a result, record-keeping requirements will also be expanded, as will the requirement to keep records of any post-contract communications.
This will obviously have a dramatic and far-reaching effect on customers. Although there is much to be said for the improved advice that customers will receive, this comes at a significant cost in terms of the actual mortgage buying experience itself. Customers who would historically have undergone a 15-20 minute non-advised process will now be forced into a 90-120-minute advised process instead. For the average customer it is estimated that the time taken for the advice process will increase by over 400%.
Earlier this month, it was revealed that some lenders are expecting appointments to take as long as three and a half hours due to the more onerous affordability rules. Furthermore, many major lenders have concluded that the sales process must be advised, and therefore carefully documented, if there is any conversation with the customer where information is imparted, no matter where it takes place.
I would argue that the compliance structure of the call centre provides a more robust record of the conversation thanks to call recording but this is only half of the story.
As a lender, you have no idea when your advice may be called into question. It could be three months or three years from now. What is certainly true is that the expectation to be able to provide evidence of compliance remains the same.
So, does this mean that lenders will review every single call? Will the recording of every three hour advised sale need to be reviewed by a second member of staff? That means electronically storing thousands, maybe tens of thousands of three hour advice sessions. The amount of electronic storage required is mind boggling but not only does this need to be stored but it also needs to be able to be accessed and recalled if or when a query is raised. Lenders will need to consider both the practical and technical ramifications of storing evidence to ensure an appropriate level of future protection.
There is no doubt that the underlying goal is for all lenders to have strict controls and strong evidence and this might be possible through listening to calls when you have a team of 5 but what about when you have a call centre of 500? How can lenders deliver on all the points above?
Software such as Vizolution’s vScreen allow advisors to conduct full interactive ‘person-to-person’ advice sessions with a customer from a remote location. vScreen also offers many benefits and in particular the ability to leverage scarce mortgage advisor capability in a fully compliant manner. Through vScreen, lenders can achieve a far greater penetration of branches in the first instance while providing a cost effective solution to making mortgages more generally available across the wider public.
The bottom line of all this is that the lenders that make it easy for customers to get a mortgage in the most convenient way, whilst still lending responsibly and ensuring compliance will win.