Second charge cooling-off period is not TCF

Borrowers are entitled to a 17-day consideration period, under the Consumer Credit Act 1974, to consider the terms and conditions of the credit agreement but some industry experts believe this may be doing the consumer more harm than good.

Marie Grundy, director of master broker V Loans, said: “Is a 17-day cooling off period at the heart of consumer protection? It does confuse the process from the consumer’s point of view because they have questions which they cannot ask.”

Grundy said that mandatory consideration of secured loans as part of the mortgage advice process was more in tune with treating customers fairly.

From April next year secured loans will cease to be the responsibility of the Office of Fair Trading and will move under the control of the Financial Conduct Authority where it is largely assumed they will fall under the Mortgage Conduct of Business rules by 2015.

And under the European Credit Directive, which is expected to be passed by the EU before the end of the year, second charge loans will be subject to the same rules as first charge mortgages – another sign that the lengthy consideration period could be scrapped.

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, said: “I see the cooling-off period as a clunky part of the process but one which is likely to change when the European Credit Directive comes into force in the next few months.

"Under the new rules mortgage offers will come with a seven-day cooling off period which can be waived by the borrower so I think the situation for secured loans is likely to change.”

Ray Boulger, senior technical director at John Charcol, described the cooling-off period as “completely illogical”.

He said: “It’s illogical to have one rule for firsts and another for second charges. This is where FCA regulation may be really helpful.”

But not everyone agreed the cooling-off period was a unnecessary step in the secured loan application process.

Simon Carr, director of secured loans at Precise Mortgages, said the cooling-off period guarantees the delivery of customer outcome four in the Treating Customers Fairly guidelines.

Outcome four states that where consumers receive advice the advice is suitable and takes account of their circumstances.

He said: “The cooling-off period does play a valuable role in the loan application process. We want more mortgage intermediaries to wake up to the value of secured loans and with this consideration period in place they can be confident they are treating the customer fairly.”