Clever Lending on course for early MCD compliance

Clever Lending, the master broker, are well on the way to ensuring all of their staff, systems, processes and administration will be ready for the new MCD regulation prior to the March 2016 deadline.

A dedicated training and competency team are working to ensure all Clever Lending staff will be CeMap qualified long before the regulations are implemented. Regular engagement with lenders and brokers is also making certain there is a high degree of knowledge as to what is required to administer secured loans in the same way as first charge mortgages.

In addition to this, Treating Customers Fairly (TCF) is at the heart of their new process to make sure positive customer outcomes remain central to the company’s direction. This is important because as the new regulation date approaches, there will be new procedures to explain to clients – disclosure requirements (the same as for mortgages), a new information sheet (the ESIS), a 7 day reflection period and binding offers.

From research carried out, not all brokers are yet aware when the regulations kick in, or that cases must be completed before the cut-off date. If a case doesn’t complete in time, any pipeline cases need to be subject to the new rules. However, as Clever Lending will be ready well in advance of this date, they will have the option to process cases later in the year or early next, under the new guidance. This will help to ensure there are no adverse effects on the pipeline or the client journey.

Sonny Gosai, Sales and Operations Manager, said: “We are well ahead of schedule for the new regulation. We are in constant touch with our lenders to ensure we implement the advised process when it is desired and practical for all parties. But we’re confident everything from a training, compliance and systems point of view will be in place well before the required date.

“Not only that but we are well prepared for making sure the customer has the best possible experience as the new regulation begins. After all, they are a vital part of this process too and we aim to make it as seamless as possible from the current process to the new, particularly those who have an application in the pipeline as the key date approaches.”

Providing an all-round regulated service – is that such a strange philosophy?

Dale Stringer – Group Director of Compliance

What does the MCD bring that MMR did not? To the advisers already providing an all-round quality service then it may be relatively little. The change from a KFI to an ESIS and tweaks to stress testing are purely fine tuning, they are not actual material change. Material change already occurred when the MMR came into force.

The MCD will require advisers to consider all other lending options as part of their advice process including second charge lending, however many advisers will already be factoring this into their current process, especially where customers have ERC’s in place, mortgages with large amounts on interest only and where customers may be on exceptionally competitive rates.

Finding a second charge partner who they can trust to work with the same diligence as they do will be a key consideration for advisers.

Second charge brokers already in the market place have historically worked as packagers rather than advisers, fitting customer to lending criteria rather than considering best advice and affordability to the level of the first charge advisers remaining in the market.

It is this side of the sector along with all previously non-FCA regulated sectors that MCD will most impact upon. It is the master brokers who are prepared to embrace change and move forward that will find most in common with our excellent mortgage advisers in the market place.

MCD will see the same sort of change for the previous sectors outside of the FCA and this can only be a good thing for customers. I have praised the advisers for the great work done in the first charge market and after all, with fees traditionally being so much higher in the second charge sector than the first, surely it follows that the customer should receive at least the same level of service?

Progress has been made in the second charge sector, but change now needs to go further. Brokers need to become advisers when required and match the service and commitment to quality advice that has further developed in the first charge market since MMR.

This is a whole new skill set for many but one that has been embraced so far. It is progressive development for each individual as well as the second charge companies and equips them to perform their role to a whole new level. CeMAP is the start of the education, and time and experience can develop this further.

We’ve implemented a new initiative for Clever Lending colleagues and they are now all spending significant time with current experienced mortgage advisors to ensure they can walk the walk and talk the talk. The aim being to improve knowledge and service for both the short and long term.

What about Buy-to-Let? My mentality in all firms I have worked with since the original ‘M’ day in 2004, is that the best philosophy is to treat all mortgage recommendations as if they were regulated. A buy-to-let customer (whether consumer or business) deserves the same high level of service. I see no advantage (indeed there may many disadvantages) of running a two tier service protocol.

The same case should also be made for commercial finance. I’ll admit to having less experience in this area, but surely the principles outlined above remain valid? You could argue that because many commercial cases by their very nature are more complex, even more effort and precision need to be put in place to ensure high levels of service throughout the application and underwriting process.

It has been reported that compliance and regulation has its costs and some firms will struggle to see beyond these, and look for shortcuts and make-do’s. But in terms of customer service, clear documentation and quality, it offers a significant element to the customer experience. After all a satisfied customer will return and make referrals – word of mouth is still a powerful sales tool.

In summary, we should aim to treat every customer as if they were applying for a regulated loan and provide them with a service that matches – would that be such a strange philosophy?

To advise or not advise – second charge loans

With MCD starting to become a topic of choice, there are various interpretations running the mill, some of which are a true reflection of requirements and some which are perhaps a slight exaggeration.

Whilst it’s true that from March 2016 second charge loans will fall under MCOB rules and need to abide by the same pre-sale disclosure and assessments as first charge loans, it is not the case that if you provide a first charge loan quote you also have to provide a second charge loan quote – this is only the case if a second charge loan is a suitable option for the client. If it’s an option the client wishes to discuss further, then at this stage your next steps will be dependent on your status of if you have chosen to advise or not.

To not advise

When discussing your clients’ options then if a remortgage is one possibility you must also make the client aware that other funding, such as a secured loan could indeed be another option for them. If you have chosen not to advise on second charges then it will still be important to ensure the client is aware of their product options, the client can then choose to discuss secured loans with someone else if they wish to.

To not advise means you will not need to consider adding in the ‘affordability’ element of second charge loans, you will also possibly avoid any initial outlay in costs for getting things in place, from product training through to systems and forms and processes.

To advise

There will likely be initial ‘hurdles’ to overcome to go down this route, for example if you’re not currently au fait with second charge loans, then getting the right product knowledge will be key. Then getting to grips with the new sales process (which in fairness will be in line with the first charge process) is the next step. And then of course it will partly be about managing your client’s expectations from a time perspective, adding advice on second charge loans to the discussion will obviously mean a longer conversation.

But, as the regulation gets bedded in and as clients become more aware of their options then will they not expect you to be able to deliver advice on their main options? Will there always be a broker behind you who can give them this information if you cannot?

It’s also important to consider that whilst there could be initial hurdles to overcome in the long-run the regulation should in fact open the door to more opportunities for you and provide your client with a safer environment in which to make a decision – hence also providing you with a safer process of delivery.

Both lenders and master brokers will need to work together to help you, the broker, deliver a seamless service to your client – to give you an easy route to finding the right product to meet their needs and providing support from start to end.

The next few months will be a learning curve for all involved, but by working together and supporting each other, there’s not really any reason why, after March 2016, we’re not all experiencing the benefits of a better advised process.

That’s if you choose to advise of course….

Clever Lending – 10 Key Points MCD

10 things you need to know about MCD

With the Mortgage Credit Directive (MCD) in all of the secured loan sector’s minds and with plans being formulated by lenders and brokers, there are many things we all need to be aware of. Some apply more to lenders, some to brokers and some that customers will have to be aware of as they start to apply for loans under the new regulatory regime. So, we’ve put together a list of ten of the key points in an easy to understand guide.

  1. Disclosure Requirements

These will be the same as for mortgages. Second charge mortgages, which currently fall under the interim consumer credit regime, will be regulated under MCOB. From March 2016, new loans will need to comply with the same pre-sales disclosure and assessments as first charge mortgagees

  1. Improved Sales Process

Will bring second charges in line with customers’ first charge mortgage. This will mean a full disclosure interview and looking at ability to pay over the term of the loan and suitability for this type of finance. Early payment of a loan will also become a product feature but lenders may have conditions on this.

  1. Affordability Assessment

As with mortgage applications, secured loans will have the same requirements for brokers and lenders to assess client affordability, now and in the future, even if interest rates rise. The new ESIS (see below) will also need to show potential payments should interest rates rise to a 20 year high.

  1. Payment Difficulties

A documented process for dealing with customers who find it difficult to pay their loan during the term will need to be implemented, as they are for mortgages. These will include staff training for the detection and handling of potential difficulties by engaging with customers.

  1. Financial Advertising

The MCD strengthens current MCOB requirements for financial promotions. As well as being clear and fair, firms need to ensure that product features are explained and are not misleading

  1. ESIS

One of the big changes will be the introduction of a new information sheet that will replace the KFI – the European Standardised Information Sheet or ESIS for short. This will need to be provided to the customer alongside any recommendation made. It will include examples of repayments if rates change as well as the ‘APRC’ (annual percentage rate of change).

  1. Day Reflection

There’ll be a new period of ‘reflection’ for customers of at least seven days to consider the Binding Offer from the lender. This will replace the current 16 day cooling off period.

  1. Binding Offer

Conditional offers will still be allowed to be made to consumers, but ultimately a lender will need to produce a binding offer. This then triggers the ‘reflection period’ of at least seven days. This will be a major change for the secured loans market and administration systems and processes will need to be updated.

  1. Conduct, Knowledge and Competency

Credit intermediaries’ and appointed representatives’ staff will need to establish minimum knowledge and competency requirements. These are extensive and are not limited to knowledge of the products but also include an understanding of the market, the sales process, valuations, the land registration, and business ethics.

  1. Consumer Protection

The new legislation aims to harmonise first and second charge lending processes and procedures, so affording consumers the same protection for mortgages or loans secured on their property. Through lender and intermediary knowledge and competency provided for through the regulatory framework, it aims to minimise irresponsible lending.

Keep an eye out for more updates and information on regulation and impacts and considerations.

Take a look at our Quick Guide to MCD