With the Consumer Duty for closed books quickly approaching, there are nonetheless questions on the place duty for compliance with the responsibility sits, particularly throughout bought and securitised books of regulated mortgages containing cohorts of mortgage prisoners, and to what extent lenders and
servicers of regulated mortgages are required to surrender “vested rights” to help them. In this text, legislation agency TLT explores points raised by mortgage prisoners and Dashly, a supplier of mortgage information and know-how options for brokers and lenders, outlines a possible resolution to help lenders and servicers.
The points for portfolios of closed regulated mortgages
In the 
Mortgage Prisoners Review, the FCA outlined mortgage prisoners as “a borrower who’s updated with funds and (i) is unable to modify to a brand new mortgage deal (with a brand new lender or with their current lender) and (ii) might doubtlessly profit from switching relying on their mortgage and borrower threat traits.”
It’s not simply debtors who’re updated with funds who’re affected. There stay massive cohorts of consumers, significantly in mortgage books, bought from defunct lenders or securitised, wherein the lender of file could have appointed a servicer to handle the portfolio and who will typically haven’t any different “reside” merchandise or various rates of interest to which clients may be moved.
Why that is essential:
The responsibility will apply to closed books from 31 July 2024. Regulated corporations can be anticipated to evaluate whether or not their merchandise proceed to supply honest worth and assist clients in pursuing their monetary goals. A latest speech by Sheldon Mills of the FCA signifies an expectation that the place such rights result in poor client outcomes, corporations might want to take steps to mitigate foreseeable hurt, together with contemplating giving up vested rights or else “assist their clients by clearer communications on what different offers can be found [in the market] and assist on tips on how to swap”.
The Financial Ombudsman Service (FOS) is more and more contemplating whether or not the charges charged to clients are honest, significantly with Standard Variable Rates (SVR). The upcoming Whistletree litigation will present pause for thought on whether or not maintaining clients on a better charge, than they may get hold of elsewhere, is sustainable.
Who is accountable for Consumer Duty compliance?
With closed regulated mortgage books, authorized and useful possession, in addition to servicing and compliance might sit with totally different events, with solely the servicer having FCA permissions to conduct debt administration and debt assortment, however with none financial curiosity in the portfolio past the charges it’s paid for servicing. FCA steering suggests the responsibility solely falls on the regulated servicer “proportionately”. Therefore, a part of the decision-making should fall on events with an financial curiosity in the portfolio. It is uncertain servicers will be capable of uphold responsibility compliance with out enter from the useful title holders. If they don’t interact, servicers will query whether or not they can proceed to manage affected portfolios in compliance with Consumer Duty necessities, and whether or not legal responsibility may be confronted by their clients in the event that they fail to offer the enter essential to facilitate compliance with the responsibility.
Dashly, collaborating with a number one mortgage servicer has created a Portfolio Management Tool to deal with Consumer Duty challenges with closed books, comprising mortgage prisoners.
The software enriches the mortgage servicers personal information with numerous third-party sources, together with reside credit score and property information and mortgage merchandise, not simply obtainable in the market however for which clients could also be eligible, such that portfolios of mortgages may be triaged into actionable cohorts based mostly upon every buyer’s present circumstances.
The servicer might then talk with every cohort in phrases that extra particularly deal with the wants of these clients, and the place applicable urge and signpost them to hunt unbiased recommendation about extra appropriate merchandise in the marketplace for which they might be eligible.
Richard Clark is a authorized director specialising in mortgage regulation at LLP and Ross Boyd is the founder and chief govt of Dashly
