Unit 2 Topic 21 - Conduct of business requirements 2 Flashcards
Define First Charge.
If a lender has to take possession of a property and sell it as a result of the borrower defaulting on the loan, the holder of a first-charge loan has the right to be repaid ahead of other chargeholders from the proceeds of the sale.
Define Second Charge.
In the event of a property being possessed
Define Consumer buy to let.
A transaction where the mortgage has not been entered into wholly or predominantly for the purpose of a business carried out by the borrower.
What is covered in MCOB I: Application and purpose?
Explains the scope of the rules, ie to whom they apply and for what types of mortgage.
What is covered in MCOB 2: Conduct of business standards: general?
Includes:
- The use of correct terminology (‘early repayment charge’ and ‘higher lending charge’);
- The requirement for communications with customers to be ‘clear, fair and not misleading’;
- Rules about the payment of fees/commission and the accessibility of records for inspection by the FCA.
What is covered in MCOB 2A: Mortgage Credit Directive?
Includes rules on a range of matters that apply to a lender classed as a Mortgage Credit Directive mortgage lender, including:
- Remuneration;
- The tying of products (making a mortgage conditional on the purchase of other products);
- Foreign currency loans; and
- Early repayments.
What is covered in MCOB 3A: Financial promotions and communications with customers?
Distinguishes between ‘real-time’ promotions (by personal visit or telephone call) and non-real-time (by letter, email, or advert in newspapers, magazines, or on television radio or the internet).
- Unsolicited real-time promotions are not permitted.
- Non-real-time promotions must include the name and contact details of the firm. They must be clear, fair and not misleading. If comparisons are used, they must be with products that meet the same needs. They must state that ‘your home may be repossessed if you do not keep up repayments on your mortgage’. Records of non-real-time promotions must be retained for one year after their last use.
What is covered in MCOB 3B: MCD general information?
Specified the requirements relating to information that must be provided to customers, for lenders who make mortgage advances regulated under the Mortgage Credit Directive.
What is covered in MCOB 4 and 4A: Advising and selling standards?
It must be clear whether advice is based on the products of the whole market, a limited number of home finance providers, or a single lender.
- Independent advisers are not required to be able to access all products from all providers: they can source products from a panel of lenders as long as the panel is representative of the market.
- Any mortgage recommended must be suitable for the customer and appropriate to their needs and circumstances; records to demonstrate this must be kept for three years. However, there is no requirement to issue a suitability report to the client.
- Special requirements apply if the mortgage will be used to consolidate existing debts.
What is covered in MCOB 5 and 5A: Pre-application disclosure?
Details the information that must be provided at the point at which a personal recommendation is made and before an application is submitted to the lender. This must include:
- The annual percentage rate of charge (APRC), which shows the interest rate with any fees added;
- The amount of the monthly installment; and
- The amount by which the installment would increase for each 1% rise in interest rates.
The required information must be provided via a European Standardised Information Sheet (ESIS).
What is covered in MCOB 6 and 6A: Disclosure at the offer stage?
If a mortgage offer is made, the lender must provide a detailed offer document. This is based on the information given at the pre-application stage, subject to any changes between application and offer illustration. The offer is binding on the lender but can be made conditional on the confirmation of certain details. The offer must also:
- state how long the offer will remain valid;
- point out that there will be no right of withdrawal
- include or be accompanied by a tariff of charges.
The borrower must be granted a period of reflection of at least seven days to consider whether to accept the offer or not.
What is covered in MCOB 7 and 7A: Disclosure at the start of contract and after sale.
Before the first mortgage payment is made, the lender must confirm:
- details of amounts, dates and methods of payment;
- details of any related products such as insurance;
- (for interest-only mortgages) the responsibility of the borrower to ensure that a repayment vehicle is in place; and
- what the customer should do if they fall into arrears.
Annual statements must be issues, showing:
- the amount owned and remaining term;
- what type of mortgage it is;
- for interest-only mortgages, a reminder to check the performance of the repayment vehicle;
- interest, fees or other payments made since the last statement;
- any changes to the charges tariff since the last statement.
What is covered in MCOB 8 and 9: Equity release - advising and selling standards, and product disclosure?
Details the FCA’s requirements in respect of lifetime mortgages and home reversion schemes. Special rules apply to equity release in relation to advising and selling standards, and to product disclosure. The FCA Training and Competence rules require that anyone giving advice on equity release must hold a specialist qualification in this area of business.
What is covered in MCOB 11 and 11A: Responsible lending?
Lenders must put in place a written responsible lending policy, and must be able to show that they have taken into consideration a customer’s ability to pay when offering a mortgage.
What is covered in MCOB 12: Charges?
Excessive charges are not permitted. Early repayment charges must be a reasonable approximation of the costs incurred by the lender if the borrower repays the full amount early. Similarly, arrears charges must be a reasonable approximation of the cost of additional administration as the result of a borrower being in arrears.
