18 September 2019 - Article
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.