FSA could ban some mortgages and cap rates

A proposal to cap the amount lenders could charge to borrowers in mortgage arrears is one of the suggestions in the FSA’s new Discussion Paper on Intervention.

The paper also sounds specific warnings on bundled mortgages, saying that consumers might not be able to understand them.

The idea of the discussion paper is to open a public debate about how the FSA, and in future the proposed Consumer Protection and Markets Authority (CPMA), should pursue the objective of consumer protection and specifically the issue of product intervention.

The paper outlines how the FSA has already begun to make a significant shift towards a more interventionist approach with tighter supervision of the governance of product development.

But it also sets out a range of future interventions that could be introduced in areas where the potential for customer harm is greatest.

These might include banning products outright or prohibiting the sale of certain products to certain groups of customers.  

In the foreword to the discussion paper, FSA chairman Lord Turner said there would be important ‘tradE-offs’ to be struck, between consumer protection and consumer choice, and between effective regulation and costs.

The publication of the paper has had a mixed response.

Maggie Craig, acting director general at the Association of British Insurers, said: “There are some potentially useful ideas here and we can understand why consumers want simpler products, if they can be made to work. However, there are also dangers to be avoided. 

“Heavy regulation of both the sales process and product design could make it uneconomic for firms to offer products to consumers.

“This paper does not explore how to ensure consumers have access to products that meet their personal financial needs. The focus should be on where problems exist and take into account that many markets already work well.”

Sarah Brooks, head of financial services at Consumer Focus, said: “With so much attention being focused on the structure of the banking industry, it is crucial to bring the spotlight back to ordinary consumers and how they are being failed by retail banking.
 
“Basic products like current accounts can be horrendously complex, switching is an unnecessarily drawn-out hassle, and customer service is so poor that many don’t even see the point in pursuing complaints.

“Our research shows that people simply feel that the big banks are all the same and there is little point moving around.

“Customers who won’t switch even when they are unhappy with their bank is a depressing indictment on the sector’s lack of competition. The sad fact is that for many consumers, mainstream banking does not provide them with the sort of products and service that they should be able to expect.

“We welcome Lord Turner’s signal that the FSA is setting its sights not only on regulation but on effective protection for consumers.”

The Product Intervention Discussion Paper can be found on the FSA website. The consultation period will end on April 21.