David French asked Steve Walker, vice-chairman of the AFB, how it was all going.
DF: Why was the AFB set up?
SW: Firstly it is important to recognise that the leading brokers in the industry drove the initiative. The secured loan industry had gone through a period of 20 years with virtually no pressure of regulatory change. With insurance being regulated by the Financial Services Authority (FSA) combined with proposed changes to the Consumer Credit Act (CCA), there was clearly a wind of change. As chairman of the Corporation of Finance Brokers (CFB) – the trade body for secured loan brokers at the time – I was increasingly asked by members to provide more regulatory assistance and support to the membership. It was soon apparent that, within the existing CFB infrastructure, there was neither the expertise, profile nor relationships in place to effectively achieve all of our goals within the necessary timescale.
Why did the CFB choose to go under the AIFA umbrella?
We looked at a number of options, including doing it ourselves. However it was clear that we would need a high degree of technical expertise, strong lobbying abilities and a robust secretariat and infrastructure. In our opinion, the organisation within AIFA and the Association of Mortgage Intermediaries (AMI) stood head and shoulders above similar bodies as an example of how to do things properly, and AIFA shared a common vision on what we needed to achieve. What is really pleasing is that analysis appears to have been spot on.
What were the original goals of the AFB?
At the outset, we communicated the following goals to the CFB membership:
- To become a recognised and respected trade organisation in the eyes of the principal regulators.
- To significantly influence future regulation for the benefit of our industry.
- To better prepare members for the impact of future regulatory change.
- To raise a positive profile of the industry and educate the regulators.
- To provide a robust, value-added support infrastructure to members, including: a helpdesk with dedicated policy expert; an interactive website, newsletters and good practice notes, regional forums with networking opportunities with senior industry regulatory individuals.
- Create member awareness of tomorrow’s issues – today.
It’s pleasing that the AFB has achieved all these goals, and more, within its first year. We have:
- Opened effective communication channels with the Department of Trade and Industry, Office of Fair Trading (OFT), the FSA, the Financial Ombudsman Service (FOS) and the Finance Industry Standards Association.
- Established a clear voice in the media with strong coverage in the trade magazines.
- Launched the AFB website, giving members immediate access to newsletters, newsflashes and factsheets.
- Created a series of events to help pull the industry together and build relationships.
- Increased its membership by 80 per cent, attracting lenders as well as brokers.
- Ensured that the membership of the AFB now covers more than 80 per cent of the £6 billion of second charge loans each year.
Generally, it’s been a case of the AFB being ahead of the game and highlighting, to members, issues which are likely to affect them in the future. Changes to the CCA, the Competition Commission review on payment protection insurance (PPI) and the impact of the Wilson vs. Hurstanger case are all examples of this.
There are two main areas of concern which have been voiced by members. Firstly there is concern with regards to the consistency of the decision making process within the FOS regarding PPI complaints. This is especially concerning given that FOS will be playing an increasing part in the adjudication process regarding CCA complaints.
Secondly, there is a widespread concern among members regarding the levels of compliance displayed within advertisements – especially on the internet. Given that most AFB members are FSA-regulated, and also abide by the CCA, they need to ensure that their adverts are clear, fair and not misleading. On the internet there are a myriad of examples of organisations, big and small, whose adverts do not meet the regulatory requirements, mislead consumers and cause customer detriment. Notably, most of these organisations are not brokerages but are lead generators. Simultaneously, genuine brokers are finding it difficult to make their websites compete on this commercially uneven compliance playing field. As a consequence, the AFB is now raising the matter with the OFT to seek enforcement where appropriate.
What changes will the revised CCA have on the secured loans sector?
“Under the current rules, customers borrowing up to £25,000 must be given two consideration periods during which they cannot be contacted by the broker – unless the borrower specifically requested the broker to do so. Under the new CCA rules this will apply to loans over £25,000 which means that brokers and packagers will need to make significant changes to their business model. The effect will be to give additional protection to borrowers but make the process slower, cumbersome and frustrating for consumers. It’s questionable why these rules still exist especially when they don’t apply to mortgages.
Of greater impact is the change to the early settlement calculations applied to non-regulated secured loans. These too will move in line with regulated loans and erode the lender’s profitability on large loans which are redeemed quickly. While transparency and a fairer method of calculating redemptions is a good thing, the economics of the industry still exist and we should expect to see the cost to the consumer rise significantly, by way of increased interest rates or fees, with lenders, master brokers and intermediaries all seeing their margins squeezed.
Have mortgage intermediaries adopted secured loans into their advice process or do they still have further to go?
Based on the feedback I’ve received from intermediaries, it is clear there is a huge degree of misunderstanding about secured loans. While some brokers have adopted loans into their sales process, there is a misconception that selling a secured loan is difficult and consequently they hand over the entire process to a master broker. The opposite is actually true. Provided the right information is made available at the point of sale, selling a secured loan is actually much quicker and easier than a mortgage. It is at the processing stage that everything becomes complicated.
For those intermediaries that feel secured loans are beyond them, they definitely need to take a closer look and partner with an organisation that will make it easier for them. Those brokers which already advise need to look carefully at how such advice is given. Mortgage brokers need to embrace secured loans, not be afraid of offering them.
What are the AFB’s plans for the future?
The AFB has a number of key objectives for its second year (2007/8):
- To continue to grow its membership so that it fully represents the industry.
- To campaign against non-compliant advertising and lead generation sites that mis-lead consumers on the types of loans and the interest rates that might be available.
- To work with the industry to promote qualifications for secured loans staff and introduce competency measures to raise standards across the board.
- To campaign in European and British parliaments to deliver appropriate and proportionate regulation of the secured loans industry.
The negotiation and timing of the transition into the AFB took well over 12 months. With hindsight, I wish that we had managed to move faster and launch the AFB sooner. While there will always be a few challenges in setting up any new organisation, there is little that didn’t go according to plan or deliver the outcomes we sought. Growing the board and our membership will continue to be a key challenge as only with strong support will we achieve a more robust industry that benefits all.
Get the daily news delivered to your inbox
Find the latest industry jobs
Find out more about this weeks industry news
