The FCA has published a 'Dear CEO' letter sent by Clive
Adamson, FCA Director of Supervision, to the chief executive
officers (CEOs) of mortgage lenders relating to changes to mortgage
contracts. In this Dear CEO letter, Mr Adamson explains that a
number of lenders have recently approached the FCA about making
changes to their mortgage contracts, including standard variable
rates (SVRs). He warned the planned rate hikes may be based on
unfair contract terms, and go against the FCA's principles for
businesses.
The letter clarifies the FCA's position on how lenders should
engage with it if they want to change their SVR and reminds lenders
of the relevant regulations and rules that apply. The FCA
recognises that lenders may want to vary their SVRs or other terms
in their contracts. However, it is concerned that the factors
driving changes to SVRs may not always be transparent to consumers.
In some cases, the changes may also be unfair under the Unfair
Terms in Consumer Contracts Regulations 1999 (UTCCRs) and
incompatible with the FCA's Principles for Businesses and other
rules.
The Dear CEO letter states: 'If you have an unfair term in
your mortgage contract, it will not be binding on the consumer. If
you have a term in your mortgage contract that is not written in
plain and intelligible language, the interpretation that is most
favourable to the consumer shall prevail.'
Unless lenders have reason to believe that they should notify the
FCA of a change to their SVR to comply with their obligations under
Principle 11, for example, the FCA does not routinely require
pre-notification of changes to SVRs or justification for changes.
However, lenders should be able to demonstrate how they have
complied with the relevant regulations and rules.
The FCA intends to publish a Discussion Paper about fairness in
the context of changes to mortgage contracts in 2014. The paper
will consider the factors that are likely to be relevant when
assessing the fairness of firms' conduct when they make changes
to their mortgage contracts.
The CEOs of such firms can no longer say that they are not on
notice of such FCA concerns in any thematic reviews that the FCA
may undertake.
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