Mortgage Conduct of Business rules and related matters

The Regulated Activities Order (RAO) states that ‘credit’ includes ‘a cash loan and any other form of financial accommodation’( Article 61(3)(c)). The term ‘financial accommodation’ has a potentially wide meaning, as is clear from its existing use in section 9(1) of the Consumer Credit Act. However, in the mortgage regime, Article 61(3)(a) of the RAO works to limit the scope by:

• identifying the person who provides the credit as ‘the lender’ and the person who receives the credit as ‘the borrower’;

• requiring that the obligation of the borrower to repay is secured by a first legal charge on land in the UK; and

• linking the land on which the obligation to repay is secured to its use (or intention to be used) as a dwelling by the borrower (or a related person).

So, whatever the form of ‘financial accommodation’, the borrower must have an obligation to repay. This calls for the existence, or the potential for the existence, of a debt owed by the person who is given the financial accommodation to the person who provides it. Without that, there would be nothing to be ‘repaid’.

For any facility, the test is whether it allows for the possibility of the person providing the financial accommodation being in a position where they become a creditor of the person they are providing the accommodation for.

In each case, a firm will have to assess the merits of the facility being offered. For example, a bank may issue a guarantee to a third party for an individual customer (such as a Lloyd's Guarantee, rent guarantee or a performance bond). Where this liability is secured on a first legal charge over the customer's residential property, ordinarily this will be a regulated mortgage contract. (If the bank had to pay under the guarantee, this would create a ‘debt’ which the customer would owe to the bank.)

On the other hand, where an individual customer provides a personal guarantee to a bank covering the liabilities of a limited company, this will not be a regulated mortgage contract. This is true even where the individual's guarantee liability is secured by a first charge over his residential property. This is because we think the bank is not providing credit to an individual. (It may be providing credit to the company, but this doesn't satisfy the definition of a regulated mortgage contract).

The importance of considering the specific circumstances cannot be overstated. Take, for example, the situation where an individual’s lending is secured by a guarantee given by their parent (this guarantee being secured by a first charge on the parental home). Such arrangements can be documented in a number of different ways. For instance, in principle, this could be a regulated mortgage contract where the agreement provides both for a loan to the child and for the child's obligation to repay, and is secured by a first charge over the parent’s home.

However, the answer may be different if there were two separate agreements:

• a loan to the child; and

• a guarantee provided by the parent to the lender.

The first agreement is unlikely to be a regulated mortgage contract because the borrowing itself is not secured by way of a first charge. The second agreement is unlikely to be a regulated mortgage contract because the parent is actually providing the financial accommodation to the lender (who the legislation would not class as a 'borrower').

Mortgage regulation means the use of the term 'independent' (or similar) is subject to certain requirements.

There are conditions a firm carrying out mortgage business must satisfy if it is to describe itself as “independent”. We set these out in MCOB 4.3.7R

If a firm describes itself as 'independent' without satisfying these conditions, it is likely to be in breach of our Principles for Businesses. Principle 7 states that: 'A firm must pay due regard to the information needs of its clients and communicate with them in a way which is clear, fair and not misleading'.

If a firm describes itself as 'independent', it must intend to:

• offer a whole of market service; and

• give the consumer the choice to pay a fee as the only remuneration for the service. As we explain in MCOB 4.3.9G, an 'independent' firm must offer consumers a purely fees-based payment option. If this is how the consumer chooses to pay, the firm will have to pay them any commission on the mortgage sale (or give them an equivalent rebate on the fee). However, this does not prevent firms from offering consumers other payment options. This is made clear in MCOB 4.3.9G. So, for example, an 'independent' firm can offer a fee and commission mix - but only as an optional alternative to a purely fee-based payment.

Finally, if a firm sells both mortgages and investments, it can choose to be 'independent' for mortgages but not for investments (or vice versa). However, the firm will need to ensure that consumers correctly understand the scope of the service it is providing (MCOB 4.3.8G(2)). The Insurance Conduct of Business rules (ICOB) do not impose particular conditions on a firm describing itself as 'independent'. However, any description of a firm’s general insurance business must be clear, fair and not misleading (ICOB 2.2.3R).

Yes. Our rules cover the whole mortgage selling process and consumers have the benefit of several protections even if they do not receive advice. Businesses that do not offer advice have to meet our requirements by:

• issuing advertising and marketing materials that are clear, fair and not misleading and which comply with the financial promotions rules;
• providing consumers with an initial disclosure document explaining that they are not receiving advice (plus other information including any fees payable and whether they are refundable);
• complying with the requirements to script questions asked in non-advised sales – where these questions address the consumer’s needs or circumstances (staff using these questions will also have to understand the distinction between providing advice or information, and firms will have to supervise staff to ensure that they don’t overstep the boundary);
• providing standardised product information - the Key Facts Illustration (KFI) - to allow consumers to compare different mortgages costs and features; and
• complying with other measures to ensure fair treatment of consumers: including a responsible lending rule and rules to prevent excessive charges.

We recognise that consumers need to understand what service they are getting. To ensure the consumer is clear about this, you must tell them whether or not they are getting advice on three occasions:

• in the initial disclosure document;
• as part of the Key Facts Illustration (KFI); and
• in the offer stage disclosure.

Early in planning the mortgage regime, we identified lifetime mortgages as presenting a higher risk. Respondents to our consultation on this agreed, so MCOB includes several additional standards for lifetime mortgage sales. MCOB 8 and 9 set out these standards.

One effect of this is that the rules hold the markets for standard mortgages and lifetime mortgages to be different. So a firm can be whole of market for standard mortgages and yet offer a lifetime mortgage service based only on the products of one or a limited number of companies. Equally, it means a mortgage intermediary can describe itself as offering a 'whole of market’ service even where it chooses to avoid doing any lifetime mortgage business.

So in all cases (even where it has the same scope of service in both markets) a firm offering both standard and lifetime mortgage services will need to have two initial disclosure documents (IDDs):

• one IDD describing the service offered for standard mortgages (following MCOB 4 Annex 1R); and
• one IDD describing the service offered for lifetime mortgages (following MCOB 8 Annex 1R).

A firm wanting to issue a combined initial disclosure document (CIDD) will need to have two versions, one for standard mortgages and one for lifetime mortgages (following MCOB 4 Annex 2R). It must then give out the CIDD appropriate for the service which it expects to provide to the customer concerned.

Templates for IDDs and CIDDs are provided, along with notes to help you complete them.

If you are unsure whether a mortgage enquiry is about a regulated mortgage, then you should get further information to enable you to assess this (MCOB 4.4.5R). You should provide the consumer with a KFI unless you have reasonable evidence that the contract is not regulated.

This depends on who produces the KFI and who gives it to the consumer:

• the lender is responsible for the accuracy of a KFI which it produces and gives to the consumer;
• a lender is responsible for the accuracy of a KFI which it produces and provides to an intermediary so the intermediary can give it to the consumer;
• the intermediary is responsible for the accuracy of a KFI which it obtains from a third party sourcing provider (or makes up itself); and
• sourcing system providers are not subject to our rules (as they are not usually carrying out a regulated activity) and so cannot be held responsible for any failure to comply with our rules.

To provide accurate KFIs, a sourcing system provider may ask lenders to guarantee the accuracy of its data and lenders may decide this is more effective than the alternative of providing KFIs direct to intermediaries. We understand the industry is pushing for more integration between lender and sourcing systems and this may lead to integrated industry standards.

If an intermediary obtains a KFI through a third party provider, such as a sourcing system, it may be able to obtain some guarantee of accuracy, or some other protection under the commercial contract with the sourcing system provider.

Where the obligation falls on the intermediary, and the KFI is not accurate within the tolerances set out at MCOB 5.4.3R, they may be able to rely on MCOB 2.5.2R where the terms of this rule and MCOB 2.5.3E apply.

Principle 2 requires a firm to conduct its business with due skill, care and diligence. This means that an intermediary must not simply assume that a KFI provided to them by a sourcing system provider is accurate and fit for their purpose. We would expect an intermediary to use his knowledge of the market and products to reassure himself that the details on the KFI appear reasonable and accurate.

If an intermediary (or a lender) becomes aware that a customer is relying on an inaccurate KFI, we expect them to take immediate action to correct the situation. In deciding whether to take any disciplinary action, we will look at how deliberate or reckless a firm has been in taking a particular course of action.

For standard mortgages, the KFI must include Section 13 'Using a mortgage intermediary' in intermediary cases (MCOB 5.6.113R). You must disclose the following:

• The total amount payable directly or indirectly by the lender to the mortgage intermediary, and any third parties. This includes fees paid by the lender, to appointed representatives of a principal acting as intermediary, unregulated firms such as introducers, networks, mortgage clubs and similar (MCOB 5.6.113R(1)).

• Any cash payments, and material inducements shown as a cash value (MCOB 5.6.117R and MCOB 2.3.7R).

• The name of the lender and the names of all recipients including networks, mortgage clubs, introducers or similar where they receive a share of the fee paid by the lender. Firms can disclose individual amounts payable to each recipient or show the total amount payable as a single figure (MCOB 5.6.113R(2)).

If the total amount is no more than £250, you can simply disclose this. Firms need not disclose the actual amount payable (unless the customer asks for this information) (MCOB 5.6.114R).

If an intermediary will pass on all or part of this commission to the consumer, he may state this and the amount payable to the consumer in Section 13 (MCOB 5.6.115R).

Firms have freedom with the text and format of disclosure used. However, MCOB 5.6.119G provides a simple example.

Payments that firms do not need to disclose in the KFI are:

• fees paid by a lender to a firm for processing a mortgage application purely on an outsourced basis, providing that firm is not connected to the intermediary, for example, through common ownership, a mortgage club, a network etc. (MCOB 2.3.8G(2) and MCOB 5.6.118G);

• commission paid by an intermediary to an unregulated introducer for a mortgage lead, where the payment is made out of the intermediary's own funds and is not as a result of a direct or indirect payment by the eventual lender;

• commission paid by a lender to an unregulated introducer for a mortgage lead which the lender later treats as a direct mortgage application (because our rules – in MCOB 5.6.113R - only apply to KFIs provided by, or on behalf of, an intermediary);

• non-material inducements (MCOB 2.3.7R only requires quantification of material inducements); and

• payments made by a lender in its capacity as 'lender principal' to an appointed representative when selling that lender's product. For example, where 'ABC Estate Agents' sell an ABC mortgage as an appointed representative for 'ABC Mortgage Lender'. (This is because an appointed representative who issues an illustration is not a mortgage intermediary under MCOB, and neither is the principal in this case so MCOB 5.6.113R does not apply.)

For lifetime mortgages, there are equivalent rules (in MCOB 9.4.119R to MCOB 9.4.125R) covering commission disclosure in Section 16 of the lifetime mortgage KFI.

The simple answer is yes. Our rules do not limit the number, or type (recommended or not), of KFI that you can give your customer – you just have to follow the appropriate rules in MCOB 4 'advising and selling standards'. So, depending on your sales process, you can issue:

• one or more KFIs where you are recommending that mortgage;
• one or more KFIs where you are not recommending that mortgage; or
• one or more KFIs where you are recommending that mortgage together with one or more where you are not recommending other mortgages.

We would envisage that you, offering an advised service, would want the flexibility to give your customers KFIs in the following circumstances:

(a) if you are recommending a suitable mortgage;

(b) if you are not recommending a particular mortgage, but you believe there may be grounds for recommending later once the customer has considered the KFI; or

(c) if you are not recommending a mortgage and probably would not have grounds for recommending it later but you still want to give your customer a KFI. An example here would be a KFI used only to explain a particular mortgage feature.

However, in line with Principle 7 (clear, fair and not misleading communications with customers), we would expect each KFI you issue to have the correct 'level of service' box ticked in Section two. So, for example, if you issue a KFI for a mortgage that you are not recommending, you should tick the box to say 'We are not recommending a particular mortgage for you….'

Also, for each KFI you issue where you are recommending that mortgage, you will need to make a record of why you have recommended that particular mortgage in line with MCOB 4.7.17R ('Record keeping for advised sales').

Once you have given your customer all the KFIs you think they need, you will probably want to let them know which KFIs you want them to consider. Given that you offer an advised level of service, these would be KFIs (a) and (b) (see above) – i.e. those KFIs where at some point you envisage making a recommendation.

There are no rules describing what you should do with the rest of the KFIs so the process is ultimately up to you. We would expect you to take reasonable steps to ensure the customer is made aware of which mortgage (and so which KFI) they are applying for. This is in line with Principles 6 and 7 (treating customers fairly and clear, fair and not misleading communication with customers).

You must also make a record of each KFI where the mortgage illustrated is applied for – in line with MCOB 5.4.19R.

This will depend on whether you are now in a position to recommend that mortgage. If the mortgage is suitable (because, perhaps, the customer's needs and circumstances have since changed) then you can make a recommendation. You will need to re-issue the KFI with the correct 'level of service' box ticked in Section two to show you are now recommending the mortgage. Again, we would expect you to act reasonably and in line with Principles 6 and 7 regarding the original KFI (as your customer will now have two KFIs for the same mortgage, one recommended and one not recommended). So, for example, you could ask your customer to discard the original KFI.

If the mortgage is still not suitable then you cannot recommend it. However, you are able to proceed with that mortgage on a non-advised basis. This will also be the case where your customer rejects all your recommendations and instead wants information on mortgages generally, or on particular mortgages (which you do not consider suitable, and so cannot recommend).

In these instances you can give information (and issue KFIs) as long as you:

(a) give the customer a new initial disclosure document (IDD) showing the changed level of service (to non-advised) – see MCOB 4.7.15R (1)(b);

(b) follow the non-advised sales rules (MCOB 4.8) and ask scripted questions if need be;

(c) consider your customer's interests – for example, if you have collected information as part of an advised sale, you use that information and don't sell a mortgage you consider wholly inappropriate for that customer; and

(d) make sure any KFI you give out has the correct 'level of service' box ticked in Section two, showing you are not recommending the mortgage.

A lifetime mortgage is a mortgage aimed at those who have assets but not income – typically older consumers - and is designed to release equity from the home. Repayment of the capital (and usually the interest) only happens when the property is sold, usually when the borrower dies. We regulate lifetime mortgages - providing they meet the mortgage definition set down in legislation.

A home reversion scheme involves the consumer selling some or all of their property to a reversion company at a discount. In return, the consumer gets a lump sum or a regular income (or both) and the right to remain in the property. Home reversion schemes are currently outside the scope of our regulation. However, the government has announced that it will give the FSA responsibility for regulating these schemes. The government has consulted on the legal changes necessary to achieve this, and before regulation can begin, we also need to complete our consultation on the necessary rules.

We think that cold-calling can expose consumers to high pressure sales tactics which mean that they end up with an inappropriate or over-expensive product (or service). Our financial promotion rules therefore ban unsolicited real-time promotions (cold calling) unless there is a pre-existing customer relationship through which the consumer expects to receive such promotions. This carries forward an approach we first set out in our Consultation Paper CP98, which respondents broadly supported.

Our rules allow you to continue to use legitimate lead generation techniques, such as consumer questionnaires, providing consumers clearly understand how their data is being used and agree to be approached by a mortgage firm.

Under the mortgage regime (see MCOB 3.7.1R and 3.7.3R) real time qualifying credit promotions can take one of two forms:‘solicited’ or ‘unsolicited’.

Unsolicited: if unsolicited, a firm can’t make the promotion unless the consumer has an established existing customer relationship with the firm, such that the consumer envisages receiving unsolicited qualifying credit promotions.

Solicited: to be considered a solicited real time promotion, the call, visit or other interactive dialogue must take place only where the consumer initiates it, or it is in response to an express request from the consumer. It must also be clear from all the circumstances that during the course of the real time promotion, qualifying credit will be discussed (MCOB 3.7.1R(2)).

Our objective with this policy is to reduce the possibility of high-pressure selling through unsolicited calls. MCOB 3.8.2R sets out the form and content of real time qualifying credit promotions (whether solicited or unsolicited).

We are aware of at least three different methods for producing the leads needed for cold calling. We set out below how we believe the qualifying credit promotion rules affect each of these.

Consumer response information

The first method involves the firm using lists of consumers who have expressed interest (to a third party not directly connected with the firm) in receiving information or advice on how to review their mortgage arrangements.

The lists are usually sold by organisations (which comply with the Telephone Preference Service or Mail Preference Service guidelines) that collect data through lifestyle questionnaires. The firm uses these lists to make telesales calls to consumers. If the consumer agrees to a review then a home visit invariably takes place. Typically, the outbound call follows a script that includes appropriate disclosures.

As long as the consumer has expressed an interest in receiving information or advice on reviewing his mortgage (or other qualifying credit) arrangements from a named firm, and the firm only contacts him for precisely that purpose, the call may properly be described as ‘solicited’. The key issue to remember is that for the promotion to be considered ‘solicited’ it must meet the 'express request' requirement of MCOB 3.7.1R(2)(b). Firms should not infer an ‘express request’ from the consumer signing up to a long and detailed set of terms in which a mortgage review is buried. Instead, firms need to be certain the consumer has clearly and consciously requested the review. To achieve this, the request could take the form of a brief letter dealing with this aspect alone, which the consumer is asked to sign. Another approach may be for the consumer to sign a page containing an express request (e.g. 'I am interested in receiving information and advice from XYZ LTD on reviewing my mortgage arrangements [signature]').

Shared customer data

This second method relies on data from third party financial services companies (such as credit card issuers). Such a company may offer additional products and services to consumers that it does not provide itself. To do this, reliance is usually placed on contractual clauses (such as the terms & conditions of the card issuer). These clauses say that information on additional products or services may be supplied as it (the relationship holding company) thinks appropriate. In these circumstances the contact details would be provided to a third party who would 'solicit' the consumer.

As discussed above, unless the consumer consciously accepts that a named third party can call them about these other services, any call will be an unsolicited qualifying credit promotion. MCOB 3.7.1R(3) clearly means that it is unreasonable for a firm to argue the call is 'solicited' because the small print of an agreement claims to allow the making of the call.

To be able to classify these calls as 'solicited', firms have to ensure they bring to the consumer’s attention the fact that calls can be made about other products and services. They also need to obtain the consumer’s permission for this to happen. An approach based around a negative opt-out will not achieve this. Even if the consumer has an existing relationship with the original company, to make outbound calls the firm to whom the consumer’s details are passed must obtain an express request from the consumer before calling.

One obvious way of obtaining an express request in these circumstances would be to have a separate signature line adjacent to the relevant provision. Another way would be through a positive opt-in tick box, which will again clearly indicate the consumer wishes to receive a real time promotion from a named firm. These tick-box options are common on many application forms and would meet the requirements as again a signature is appended to the form.

Worked-up leads

In the final method, specialist marketing companies provide firms with not just contact details of consumers, but also information about their borrowing needs, or financial circumstances, or both. This usually follows from the consumer having a real time conversation with the marketing organisation, during which the consumer states that he would like to review his mortgage affairs.

As before, a communication subsequently made by a mortgage firm can be properly classified as ‘solicited’ if the consumer expressly indicates and accepts that he will be called by a named third party to conduct a review of his mortgage affairs. Again, using a signature page would be one way of enabling the consumer to provide the necessary 'express request' required under our rules (MCOB 3.7.1R(2)(b)).

There are two further important points to note about this final method. Firstly, a specialist marketing company which collects information about the circumstances (borrowing needs etc) of individual consumers before passing them on to a firm, may be engaged in the regulated activity of ‘mortgage arranging’. Where this is the case, the firm needs to be authorised unless there is an available exclusion.

The most relevant exclusion is likely to be either Regulated Activities Order (RAO) Article 29 (arranging deals with or through authorised persons) or Article 33A (introducing to authorised persons etc). To take advantage of the exclusion in Article 33A, the firm would need to make plain to the consumer its financial interest in making the introduction. However, where the marketing company is undertaking a fact-find for the authorised firm, it is unlikely it will be able to use this exclusion because it can only do what is necessary for making an introduction. In an Article 29 exclusion, any money received by the introducing company from a third party other than the consumer, must be passed on to the consumer. Further guidance on the scope of arranging and the various exclusions available is the perimeter guidance available on our website (see our guidance in PERG 4).

Secondly, the marketing company or other third party must take care not to make a qualifying credit promotion. Otherwise, they run the risk of breaching the financial promotion restriction in the Financial Services and Markets Act (section 21 - on the assumption the third party is unlikely to be an authorised person). If the firm itself makes the approach, then our rule MCOB 3.7.4G(2) becomes relevant - however, firms should note this is an extremely limited exclusion.

There is also an exemption in the Financial Promotions Order at Article 28B which these marketing firms may be able to use. Where a real time promotion is made for the purposes of, or with a view to an introduction, then the prohibition in section 21 of FSMA does not apply, and therefore neither does MCOB 3. This exemption is very similar to the exclusion in Article 33A of the RAO, in that there are a number of conditions attached. These primarily involve the marketing firm making certain disclosures e.g. the amount of any remuneration received for making the introduction before the introduction is made. Also in line with Article 33A, the marketing firm can only do what is necessary for the purposes of making the introduction. So any such company which undertakes for example a fact-find of the consumer's circumstances will not be able to use Article 28B. In addition, they may also be undertaking the regulated activity of arranging regulated mortgage contracts and need to be authorised.

Our rules ban unsolicited real time qualifying credit promotions unless the firm making the call has an established existing customer relationship with the consumer, such that the consumer envisages receiving unsolicited calls (see MCOB 3.7.3R). This rule is aimed at those relationships that are maintained over a long period - for example, between lender and consumer, or between financial adviser and client.

A firm that has helped a consumer in the past, for example a broker who arranged a mortgage for a consumer once several years ago, is unlikely to have a relationship with the consumer which is maintained after the mortgage is concluded. In these circumstances it will be difficult for the firm to show there is an established existing customer relationship. Regularity of contact will also be an important factor in determining if there is an existing established customer relationship in place.

Where a firm is unable to show it has an established relationship with a consumer, it must instead rely on the consumer expressly requesting a call from the firm to discuss qualifying credit. The separate issues of ‘what is an express request’ and how long such a request remains valid are dealt with in later questions.

For a consumer with whom a firm has an established existing customer relationship with, to ‘envisage receiving unsolicited real time promotions’ the firm must point out that its policy is to call consumers from time to time. It is unacceptable for a firm to hide this information in standard terms and conditions – it must specifically bring it to the consumer’s attention. The consumer must expect to be called in the future to discuss the mortgage (or qualifying credit) arrangements; there must be an element of prior knowledge or consciousness of the likelihood of being called (or visited). We believe firms should allow consumers to opt-out of receiving such calls, and that this should be easy for the consumer to do. For our view on the effect of Telephone Preference Service (TPS) registration on a firm's ability to call consumers, see below.

An express request for a real time promotion is not transferable from the firm obtaining it to any other firm, unless the consumer has expressly agreed to a named third party contacting them.

To be solicited, the consumer must initiate the communication or expressly request the firm to contact them. In contrast to the ability to call an established existing customer, the consumer must positively opt-in to satisfy the definition of ‘express request’. Also, for a request from a consumer for a real time promotion to be ‘express’ it must be definitely stated. The consumer must be aware that their agreement will result in a call or visit from a firm to discuss qualifying credit, and know which firm is likely to call or visit. The consumer will not have given an express request for a real time promotion if the name of the firm that will be in contact is not disclosed. Therefore, ‘blanket’ express requests are not acceptable. Where, for example, market research agencies or lifestyle questionnaires are used to obtain leads for authorised firms, they must make it clear on whose behalf they are operating and name the firms likely to call.

Consumers are, of course, at liberty to withdraw their consent to receive real time promotions, irrespective of how the firm makes such promotions. This can be achieved more easily where the consumer has an established relationship with a firm. It may be more difficult to withdraw an express request where this has been given to, for example, a market research agency.

Firms should be familiar with the Telephone Preference Service (TPS) and the effect of the Privacy and Electronic Communications (EC Directive) Regulations 2003. For comments on how TPS registration affects a firm's ability to call consumers, please see below.

Where there is an established existing customer relationship with the consumer, in normal circumstances, and where the consumer has not indicated to the contrary, a firm could contact the consumer throughout the period the contract remains valid.

Firms using cold calling to generate business should note that the passage of time will cancel an express request. The longer the period of time between obtaining an express request and a firm calling a consumer, the more likely it is that the firm will be unable to rely on the express request.

The exact time at which an express request is cancelled in this way will be different in individual circumstances. We would normally expect express requests gained through market research and lifestyle questionnaires to be cancelled in a short time. Where a broker arranges a mortgage for a consumer and at the same time obtains an express request to outbound call, the exact time when the request will be out-of-date will again depend on the individual circumstances. Brokers commonly diarise calls to previous customers for the time shortly before special offers are due to expire, and we believe this can offer valuable customer service. To make these calls, brokers should obtain requests that expressly permit them to call the consumer over a period of several years.

Firms should also bear in mind that if the nature of the contract with the consumer changes, this may affect their ability to use outbound calling.

MCOB 3.7.3

This rule bans firms from making 'unsolicited real time promotions' (cold-calling), unless they have an established existing customer relationship with a consumer. Under this, the consumer envisages receiving calls from the firm to discuss issues such as qualifying credit.

The regulations

The Information Commissioner (IC) has published some guidance on the Privacy and Electronic Communications (EU Directive) Regulations 2003 (the regulations):

Section 21(1) of the regulations prohibits firms from making unsolicited calls for direct marketing purposes in two instances. These are:

• where the consumer has previously notified the firm that it should not make such calls; or
• where the consumer has listed their number with the TPS.

Under Section 21(4) of the regulations, the firm may make unsolicited calls to a consumer whose telephone number has been listed with the TPS if the consumer has notified the firm that they do not – for the time being – object to such calls.

Guidance issued by the IC

The IC's guidance states that if a consumer registers with the TPS, this indicates they generally object to unsolicited marketing calls. TPS subscribers can give their consent to receive unsolicited marketing calls – this overrides TPS registration. However, this is only valid for the caller the subscriber gives their specific consent to.

As outlined above, firms can make (or instigate the making of) unsolicited telesales calls to a TPS-registered subscriber if the subscriber has notified the firm that – for the time being –they do not object to receiving such calls. This comes under Section 21(4). However, the guidance makes a distinction here. The firm can make an unsolicited marketing message to the subscriber if the consumer has consented to receive a message from the firm that is not specifically invited, but which they have positively indicated they do not mind receiving. However, the firm cannot make an unsolicited call if the subscriber has merely failed to object to receiving a message when given the opportunity to do so. This does not qualify as necessary consent for the firm to make an unsolicited call.

In summary, to make a marketing call, a firm needs a positive indication of consent, as defined in the regulations. The IC states that the individual must knowingly indicate consent and fully understand the action in question will signify consent. The fact that an individual fails to object when given the opportunity only means they have not objected, it does not mean they have consented to receive unsolicited marketing messages. Failure to object is unlikely to constitute valid consent. However, certain factors may help establish that the consumer has given consent – for example, they may not have ticked a suitably prominent opt-out box.

Impact on MCOB 3

If a firm wishes to use the established existing customer relationship route to cold-call consumers – and it will not be monitoring the TPS on a regular basis to establish if any existing customer has registered – it must obtain the customer's positive opt-in to receiving such calls. In the light of the IC guidance, this will signify the customer's positive consent to receive unsolicited marketing messages.

If a firm will be regularly monitoring the TPS to ascertain if existing customers have registered and finds that they have not done so, then we believe it can make an unsolicited real time promotion. This is providing the customer envisages receiving such promotions (see MCOB 3.7.3R). However, the firm should ensure that customers are given an easy means to opt out of such calls.

Client money is money of any currency which, in the course of carrying on mortgage mediation activity, an intermediary receives and holds on behalf of a client, either in a bank account or in the form of cash. Client money would include, for example, money received and held to pay a valuation or survey fee to a valuer or surveyor. However, if an intermediary simply receives a cheque made payable to a third party valuer or surveyor, that will not be client money. Finally, money that is due and payable to an intermediary - for example, an administration or brokerage fee - is not client money.

MCOB 7.6.1R(2) applies when a firm can make a change to the terms and conditions of the regulated mortgage contract without the customer's prior consent. In this case, a firm must give the customer reasonable advance notice of the change.

If a customer has to agree to a change to the terms and conditions or asks for the change himself, there are two distinct sets of disclosure rules.

Firstly, for a further advance (MCOB 7.6.7R), a rate switch (MCOB 7.6.18R) or the addition or removal of a party to the mortgage (MCOB 7.6.22R), the firm must provide a KFI before the customer applies for or agrees to the change.

Secondly, for any other case where the change to the regulated mortgage contract results in a change to each payment due from the customer, MCOB 7.6.28R applies. The firm must, before the change to the regulated mortgage contract can take effect, provide the customer with the key pieces of information required by that rule.

For lifetime mortgages, firms should also refer to MCOB 9.7 and 9.8.