Consumers to get more protection - Better late than never
Moneytimes with Jill Kerby
In the same week that the unfortunate owner-occupiers and tenants of the North Dublin apartment block, Priory Hall discovered that building standards had been completely flouted and their homes would have to be temporarily abandoned, the Central Bank announced that the standards by which financial products are bought and sold were to be strengthened with revised Consumer protection codes.
It will be little consolation to the beleaguered Priory Hall residents that the way mortgages will be sold in the future will be improved this time with due regard to suitability and affordability but it might help prevent someone else from paying far more than they can afford for an overpriced, shabbily built apartment or house.
I say 'might' because no amount of stricter regulations or codes will prevent outright fraud if an individual builder or lender/broker is determined to rip you off. And just because a stricter building code, or its enforcement, is put in place doesn't automatically mean that the buyer will bother with their own due governance.
Caveat emptor, indeed.
But the new rules are, at least, another step by the new Financial Regulator and Central Bank to bring our consumer practices up to at least the standards that other countries seem to mostly achieve.
The codes come into force from January 1, 2012, and involve both the way in which financial products are sold, and then how arrears and complaints are dealt with by product providers and lenders.
The key areas are:
• Mortgage lending: Self certification of declarations of income for the purpose of securing a mortgage will be banned and there will be stricter requirements in place for affordability testing, that is, stress testing of the borrowers ability to pay if interest rates rise/wages fall, etc.
• Transparency: More balanced and prominent information must be provided
to consumers in advertisements including potential product risks as well as benefits. The Code also sets out the key information that has to be given to consumers 'before, during and after the sales process, including information on charges, commission and remuneration arrangements'.
• Arrears handling: The new rules deal with how regulated entities must deal with and treat consumers who are in arrears on a range of loans (including credit cards, personal loans and buy to let mortgages) introducing protections for these loans similar to those for mortgage arrears which are already covered by the Code of Conduct on Mortgage Arrears. The number of unsolicited communications with consumers is limited to just three in each calendar month.
• Product Mis-selling: High pressure, unsolicited, doorstep selling of financial products to consumers are banned. (So no more cold calls from insurance salesmen.) Strict new rules for setting up personal visits. Also, product sellers will have to undertake a more vigorous fact find to determine the 'suitability' of the product based on the consumer's financial position. Also, the seller's remuneration must not influence the sale of product.
• Vulnerable consumers: The Code is also putting the onus on the seller/product provider to consider the vulnerability of the consumer 'for example, a vision or hearing impairment or a lack of knowledge, experience or financial capability, and must provide those identified as vulnerable consumers with the necessary arrangements or assistance to facilitate their dealings with the regulated entity.'
• Errors and complaints resolution: A much stricter process will have to be undertaken with regard to resolving errors affecting consumers, with detailed records and regular analysis of the complaint process having to be maintained.
If I have any immediate quibble with the new code, it is that the Regulator has missed a chance to give notice to the financial industry that the days of commission remuneration to their brokers, distributors and other intermediaries are numbered and that within, say, a two or three year period, all commission will be banned.
Exactly this new 'code' is being introduced in the UK from January 2013. And while it has been energetically lobbied against by insurers, banks and other investments companies shifting the reward for selling a savings policy or pension fund away from the product manufacturer to the consumer will confirm what this column has stated for many years: if you pay an experienced, qualified, licensed (by the Regulator) investment advisor or intermediary a fair fee for their time and expertise, they are less likely to try to sell you an unsuitable but high commission paying product.
The best advisors independent of any remuneration from the manufacturer do their best to find a product, fund or asset that will suit the age, risk profile, and goals of their client. Sometimes, that means suggesting they leave their money in the credit union; at other times, in a sophisticated fund of international stocks and shares.
How much they will be rewarded becomes a matter only for themselves and the person sitting in front of them who they hope to have a life-time's relationship. You don't get that selling shabbily built apartments to someone, or an expensive, badly constructed pension fund.
You can review or download a PDF of the new Codes of Conduct (2012) at www.centralbank.ie
PS: The National Consumer Agency has revamped its financial product cost comparison website, and will for the first time include mortgage offers.
Check it out here: http://compare.itsyourmoney.ie/Default.aspx
This column is sponsored by Aviva Insurance.
Post a Comment