FSA accused of regarding mortgage lenders 'like drug dealers' » Housing » 24dash.com

The City watchdog was accused today of viewing mortgage lenders as being like "drug dealers at the school gates".

The chairman of the Council of Mortgage Lenders said the Financial Services Authority (FSA) saw consumers as "wanton children" who did not know what was good for them.

He said through its proposed reforms to the mortgage market, the regulator was attempting to wrap customers in cotton wool and make borrowing risk free.

Matthew Wyles said: "Increasingly, I also have the feeling that regulators see lenders and intermediaries as the sweetshop owners - or worse, the drug dealers at the school gates - of the mortgage market, enticing innocent consumers in and then getting them hooked, for their own evil profit-driven purposes."

The FSA set out proposals for "more intrusive regulation" last month, including the introduction of mortgage affordability tests, and a ban on self-certification loans and mortgages that contained a combination of high-risk characteristics.

But Mr Wyles warned that if the FSA moved away from the principle of caveat emptor, or buyer beware, it did so at great peril.

He said such a move could create the kind of moral hazard the FSA wished to avoid, with consumers feeling they needed to take little or no responsibility for their own financial decisions.

Speaking at the CML's conference, he said: "That's not to say we want consumers to lack adequate protection from their own financial naivety or lack of experience - of course we don't. But there is a balance to be struck."

He warned that the regulator's plans to get lenders to verify all borrowers' income could asphyxiate the market and add extra costs and time delays to mortgage applications.

He said: "It seems we're not even going to be allowed to rely on the borrower's assessment of what they spend on food, booze and fags - but the "feasibility" tests we're going to have to apply sound pretty clunky, and costly, for consumers."

He added that in most cases where borrowers found they were unable to pay their mortgage, it was not because they had underestimated their normal spending, but because of changes in circumstances, other credit commitments and financial shocks, which affordability models could not prevent from happening.

He also called on the FSA to "think hard" about the problems that could arise from its rule changes for borrowers who already had mortgages which they were paying "perfectly well", who would find it difficult to get a new mortgage in future.

Mr Wyles said: "The FSA doesn't seem to mind if these people drop out of the mortgage market."

He called on the regulator to use the consultation period to work with lenders to ensure its new rules did not create unintended and damaging side-effects in a market that would still be fragile when they came into force.

Also speaking at the conference, John Pain, the FSA's managing director of supervision, said the regulator would work closely with firms to find acceptable ways to verify borrowers' incomes and assess affordability.

He said the FSA was not seeking to block access to the market through income verification, but it hoped the move would reduce the number of unaffordable and unsuitable mortgages that were advanced.

He added that the move should also lead to a decrease in arrears and repossession rates, reduce mortgage fraud and increase transparency in the market.

He said: "Everyone who takes out a mortgage should be able to repay it - they should have some evidence that they can repay it and lenders should take note of that evidence.

"We want lenders to get back to the basics of responsible lending and we will continue to push the industry where we find firms are not treating their customers fairly."

Mr Pain also said the FSA did not intend to penalise non-banks or stifle competition in the mortgage market, but it did want to curb the particularly high-risk lending strategies that had led to significantly higher arrears levels in some parts of the market.