Editors Explanations

What do the FSA reforms mean to me?

The Financial Services Authority (FSA) is the statutory regulator for the financial service industry in the UK.  Originally the FSA was given four specific, and equal, objectives by Parliament. These are: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers and fighting financial crime.

With the upheaval in the global economy the FSA has had to set out proposals for major reform in the UK especially in the mortgage market.

The belief is that lenders were too lenient about checking whether or not consumers could repay their debt whilst still having cash in hand and savings to shield them from unforseen circumstances and, as has been proven throughout 2007 to date many didn’t.

Now the FSA has introduced a proposal that will hopefully protect against consumers over extending their home loans and mortgages by ensuring that lenders use a more interventionist style of regulation.  What this means to the average consumer is:

- The lender will be held responsible for assessing a consumers ability to repay the loan

- Self certified mortgages will be banned

- Banning charges on arrears to ensure that no one profits from consumers in arrears

-  Ensuring that mortgage advisors are accountable to the FSA

-  Banning financial products that are sold containing ‘toxic combinations’ of terms that will put the consumer at risk

-  Requesting that the FSA are also allowed to extend these rulings to ‘buy to let’ and all other lending secured on a home i.e. where your house is used as security

Consumer concern is that this will inhibit their ability to secure a mortgage without large deposits and furthermore will deny them access to further loans using their homes as security and, as the banks tighten up their lending policies, the consumer is further feeling the pinch.

The good thing is that the FSA is doing this to prevent further consumer abuse and assist in regulating the financial services industry to encourage consumer confidence and assist in building a more sound economy.

The FSA are actively seeking views from the consumer on how they feel about the proposal and what else can be proposed to prevent similar situations developing.