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Why is the Law Society concerned about the effects of the Mortgage Credit Directive (MCD) and the Financial Conduct Authority’s (FCA’s) proposals for implementation? Charlotte Eborall of 3 Verulam Buildings, explains the background to the MCD and the FCA’s proposals and discusses the Society’s concerns surrounding lenders’ binding offers.
What’s the background to these rules?
In February 2014, the EU published the MCD (Directive 2014/17/EU on credit agreements for consumer relating to residential immovable property). The purpose of the MCD is to introduce a European framework of conduct rules for firms selling both first and second charge mortgages to ensure consumer protection. The MCD is required to be implemented by the UK by 21 March 2016.
What are the key features of the MCD implementation proposals?
In September 2014, the FCA issued a Policy Statement (CP 14/20) explaining the key features of the MCD and the way in which it will transpose the Directive into UK legislation (see FCA consults on MCD implementation, LNB News 25/09/2014 97). The FCA’s approach has been to use its existing Mortgage Conduct of Business (MCOB) rulebook or, where necessary, to copy out the MCD in order to give it effect in the UK. The FCA’s MCOB rulebook is already a robust set of rules and guidance detailing the way in which firms must sell mortgages and the FCA’s recent mortgage market review (MMR) has meant those rules have been further tightened since their inception.
The most significant effect of the implementation of the MCD is that second charge mortgages, which currently fall under the interim consumer credit regime, will be regulated by MCOB. Thus, second charge lenders will need to seek the necessary authorisation and permissions from the FCA to continue their business and, in respect of new loans, will need to comply with the same pre-sales disclosure and assessments as first charge mortgagees. Current second charges will be regulated by the new regime in respect of their post-sales disclosure as well.
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