FSCP: MMR doesn’t protect mortgage prisoners

The Financial Services Consumer Panel said more than a million people who will fail new affordability rules under MMR will fall through the protection net and be forced to pay penal rates by lenders.

Mike Dailly, chairman of the Consumer Panel working group, said: “Cleary there are potential risks in the transition to the new rules for mortgage prisoners.

“The risk is that they will be charged a higher rate of interest and will be unable to move their mortgage elsewhere. We have some serious concerns for these borrowers.”

Dailly said the Financial Services Authority must address this risk by devising a specific rule for mortgage prisoners because the existing guidance on Treating Customers Fairly was insufficient.

He said: “We are not convinced that the powers under the Unfair Terms of Consumer Contract Regulation are going to provide the comfort that we’re looking for.

“We’re suggesting the FSA has shown itself to be unwilling to enforce principle six, Treating Customers Fairly, where there is no evident breach of the rules.

“The Unfair Terms of Consumer Contract Regulation has been used in the past where lenders have made unfair changes to interest rates but the current situation is now different.”

Dailly explained that with so many millions of borrowers on standard variable rates, many of which have been hiked in recent months, there was evidence of lenders discriminating against “riskier” customers.

“We’re very concerned about certain groups of customers with higher loan to values being discriminated against,” he added.

The FSCP said a specific rule was needed to ensure mortgage prisoners were not discriminated against “by reason of their inability to access alternative mortgage products”.

And Dailly said the FSA must define “mortgage prisoner” which as yet it has failed to do.

He said: “It would also have to include some provision for a prohibition on lenders from treating mortgage prisoners less favourably than other customers by reason of the fact they are trapped.”

Dailly said this rule coupled with TCF principles would give the FSA “enough oomph” to protect mortgage prisoners.