The co-chairman of an influential Parliamentary group has called on regulators to protect Britain’s consumers and small businesses by banning the sale of debt to unregulated and inactive lenders.
Kevin Hollinrake MP, of the All-Party Parliamentary Group on Fair Business Banking (APPG), has called for the creation of a new tribunal to protect SMEs (small and medium-sized enterprises) who have disputes with major banks or other financial services firms.
His comments followed a cross-party motion, co-sponsored by Charlie Elphicke MP and Martin Whitfield MP, which aimed to step up the pressure on the Financial Conduct Authority (FCA) and the Treasury to act to free ‘mortgage prisoners’ and protect SMEs from asset stripping by unregulated lenders.
The APPG estimates that there are around 200,000 mortgage prisoners across the UK who are trapped with inactive and unregulated lenders and are unable to take advantage of historically low interest rates.
The mortgage prisoners are trapped into paying higher rates of interest to their borrower because they cannot meet affordability tests, brought in after the financial crisis, despite making payments on their current, higher interest rate mortgage.
This has caused problems for borrowers who have found their debt sold on to unregulated private equity firms that do not offer new mortgages or more affordable rates.
Speaking after the debate, Mr Hollinrake, who is the Conservative MP for Thirsk, Malton and Filey, said: “It is shocking that these mortgage prisoners and SMEs, despite doing nothing wrong and being up-to-date with repayments, have been sold down the river.
“The FCA must now act quickly to free the mortgage prisoners and outlaw the sale of debt to unregulated and inactive lenders. SMEs must also be protected by legal requirements to treat SME customers fairly and must be given access to an independent and fair Financial Services Tribunal.”
Martin Whitfield MP, Vice-Chair of the APPG on Fair Business Banking, said: “The sale of debt to ‘vulture funds’ represents a systemic failure to effectively protect consumers and businesses from predatory practices. There must now be collaborative action from the regulators and government to find a solution to help these individuals and SMEs across the UK.”
An FCA spokesman said: “We have recently issued a consultation paper on changing the rules to help mortgage prisoners.
“We have previously stated our support for a tribunal, but this is a matter for Government.”
The FCA said that mortgage customers who have previously been unable to switch mortgages despite being up-to-date with their payments, could soon be able to find a cheaper deal.
The FCA has proposed changes in the ways lenders assess whether or not a customer can afford the loan. The consultation on new lending rules forms part of a package of remedies designed to help the market work better, the FCA said.
The FCA said it is seeking to speed up the widespread participation by lenders in “innovative tools” to help customers more easily identify what mortgages they qualify for. The FCA is also consulting on proposals to change mortgage advice rules and guidance to help remove potential barriers to innovation.
In its Mortgages Market Study, published recently, the FCA concluded that the mortgage market is working well in many respects but “falls short of the FCA’s vision in some specific ways”.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said: “We are particularly concerned about consumers – who are commonly referred to as mortgage prisoners - who are currently unable to switch. That is why we are acting now to help remove potential barriers in our rules. These changes should make it easier for consumers to get a more affordable mortgage.”