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Baroness Turner of Camden: I support the amendment. My Amendment No. 101, which is included in this group, was tabled at the instance of the National Consumer Council. That body wrote to me to express disappointment that the Government had not chosen to include full regulation of mortgages within the authority's remit. As has just been said, a mortgage is probably the largest investment that the average person makes in a lifetime. The only other investment of similar size is that related to pension provision. These are major decisions which matter awfully to most people. I understand that regulation is partially extended to this area. I should like to hear from the Minister precisely what that means because the amendments before the Committee this evening seek to provide full regulation of mortgages by the FSA.
Lord Jenkin of Roding: I speak from my former experience as chairman of a life insurance company. The life insurance industry found itself increasingly affected and disadvantaged by the fact that almost identical products were able to be sold under the guise of mortgages which were not subject to the full regulatory impact of the financial services legislation. They were in competition with similar products sold by life insurance companies. On a number of occasions and on a number of different platforms I argued that that was a very uneven playing field.
Therefore when the Government decided finally that mortgages should come within the scope of the Bill, I was pleased. My reaction at the time was to say, "Not before time". However, until the National Consumer Council and others reacted with disappointment, I had not realised that the people who sell them--brokers and others throughout the country--are not to be subject to the controls provided by the Bill. I find that quite extraordinary. How one can divide the market in mortgages between the providers-- building societies, banks and others which advance money on the security of property (and I accept the point that the noble Lord, Lord Sharman, made; it is not just land)--without at the same time bringing within the control the people who deal face to face with the public who have to borrow in order to finance their purchase leaves me deeply puzzled.
As I understand the changes that the Government have made to the Bill, the mortgage broker is not within that control. The Government have not taken even two steps forward but only half a step forward and one step back in bringing in the building societies but not the brokers. I join with the noble Baroness, Lady Turner of Camden, in asking Ministers to justify what seems at first sight to be a somewhat extraordinary division.
Lord Burns: I support the amendment of the noble Baroness, Lady Turner of Camden. When the issue was discussed in the Joint Committee a variety of views was expressed. However, the majority decided in favour of including mortgage advice. We recognised that a timetable for implementation would be required. The costs could be high. It might be a problem for the FSA to implement it quickly. Nevertheless, there was concern for a number of reasons: the importance of the transaction; and the growing complexity of choice available, in particular between fixed and variable rate mortgages. There is a wide range of discounts on offer; and there is the question of penalties on repayment.
I understand why the Government have opted for a balance between having the mortgage providers fall within the regulations and trying to keep mortgage advice out. The majority of the problems which arise are concerned with the mortgage providers and the hope is that one can deal with many of them by setting out in more detail the facts and the commitment that the customer is making.
However, we shall be faced with enormous problems in the future. When people believe that they have been given bad advice there will be a great debate as to where the fault lies. To what extent does it lie with the providers and to what extent does it lie with those who gave advice? Mortgages are a large financial product and play a big part in people's lives. To leave people in doubt as to which part of the process falls within the regulations and which part does not can only cause great confusion.
I understand the problems of cost and the number of people who will be brought within the framework of the regulations. I can also understand why there is no hurry to act. However, I should be greatly surprised if the balance between what is in and what is out were sustainable. The time will come when everything must be included.
I had hoped that we could move forward with a general expression of intent and then worry about the timetable. The Government have chosen not to do that and I, like the noble Lord, Lord Jenkin, am sorry about that.
Lord Joffe: I, too, support the amendment. I share the puzzlement of the noble Lord, Lord Jenkin, at the rationale behind the Government's proposal to introduce the regulation of mortgages on only a piecemeal basis. In order to recognise the dangers of the proposal, it is helpful to explore what happens at the point of sale. The borrower seeking a mortgage is often engaging in the largest and most complex financial transaction of his life. He often has no experience of such transactions. And even if some of the options are explained to him, there are, as the Treasury's press release on mortgage regulation points out, some 4,000 to 5,000 different mortgage deals to choose from.
Perplexed by all the options--and often they are not explained at all--the borrower normally turns to his friendly mortgage broker, who is trying to sell him a mortgage, asks for his advice and then follows it. If that advice is inappropriate, it may be many years before the borrower realises it. And when he does, under the Government's proposals he will have no redress.
When I was chair of the complaints committee of LAUTRO, the regulator that preceded the Personal Investment Authority, time and again we were prevented from redressing the obvious mis-selling of life insurance products for the very reason that mortgage advice was not regulated. The FSA ombudsman will find himself in an identical position. As the noble Lord, Lord Jenkin, said, it is difficult to understand the reasoning behind the Government's decision to exclude mortgage advice. On the one hand, sales people who sell life insurance products, which are often simpler than the current range of mortgage products and of a relatively lower value, are regulated while mortgage brokers, who sell the complex and often high-value mortgages, are not. It is difficult to understand the rationale behind the approach.
Experience of mis-selling of life insurance policies has demonstrated how difficult and costly it is to deal with the consequences of mis-selling. The aim of regulation must surely be to prevent poor advice being given in the first place and the proposed amendment will help to achieve that.
Lord McIntosh of Haringey: It may be helpful if I begin by explaining briefly the context in which these amendments are being debated. The announcement by the Government about the inclusion of mortgages in the scope of the Bill did not require an amendment to the Bill. That is the way in which Clause 20 and Schedule 2 are constructed.
With that, I move to the substantive issue which, I accept, is more important than the amendment because an amendment would not be necessary to give effect to what Members of the Committee want. I should stress that although the general scope of regulated activities is indicated in Schedule 2, the scope of regulation will be marked out in the Regulated Activities Order, where regulatory issues can be handled more flexibly. The first order made in exercise of this power and all subsequent orders which extend the scope of regulation will be subject to an affirmative resolution procedure, giving both Houses the opportunity to voice their views on regulatory issues.
I turn to the issue of whether and how much mortgages should be regulated. The Government plan to cover most residential mortgages as we are determined that lenders should not be able to take advantage of mortgage borrowers at a time when they may be vulnerable because they are focusing on a home purchase. I go along with what every Member of the Committee has said about the importance of a decision of this kind in people's lives.
As for "any other property", referred to in Amendment No. 97, the Government are concerned about protecting people's homes. On the whole, caravans and yachts do not fall into this category; nor does any other non-residential property. We recognise that mortgage borrowers need better information. Regulation through the FSA will ensure that they receive it in a form which will readily enable comparisons to be made in order to help people to decide what suits them. Therefore, so far as concerns Amendment No. 97, I hope that that meets noble Lords' concerns and that they will be able to withdraw their amendment.
I turn to Amendment No. 101 in the name of my noble friend Lady Turner of Camden. The Treasury consulted last year on whether mortgage advice should be regulated. Evidence from the consultation showed that the main area of preventable consumer detriment was poor quality or misleading information which resulted in consumers buying an inappropriate mortgage product. In other words, consumers wanted clear, comprehensive and reliable information.
The Treasury received little evidence of specific cases where consumers were receiving bad or biased advice. When that was mentioned, it was in the context of selling commission-based products, such as endowment policies. I hope that it is clear, because it was not clear to me at the beginning, that commission-based products, such as endowment policies, are already FSA-regulated and did not need to be included in the Bill under the change which was made in relation to mortgage regulation.
On that basis, most problems in the mortgage industry could be dealt with by a combination of a disclosure regime and CAT standards, together with action taken by the DTI banning the tying-in of insurance policies and standardising annual percentage rates. Therefore, there is no need to regulate advice.
I turn now to Amendment No. 102. I have already indicated my reasons for resisting the amendments to Clause 20. I hope that this amendment may be withdrawn, too. It is not that we do not want to cover mortgages; we shall be covering most residential mortgages, first legal charges, home income plans and equity release schemes on property occupied by the borrower. The Bill will cover mortgage lending on property to be occupied by the borrower or the family.
It will not cover mortgage brokers, who will not need to be specifically authorised unless they also carry out investment business such as advising on endowment policies. We certainly shall not cover second charges on homes; for example, for loans on replacement windows or kitchens and so on. That is partly because most transactions of that nature are covered by the below £25,000 limit contained in the Consumer Credit Act. Therefore, they are covered by the CCA.
I hope that I have persuaded Members of the Committee that we have covered the most important elements of mortgage regulation at a price which is acceptable and at an addition to the FSA's resources and responsibilities which is also acceptable.
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