Calls For Secured Loans To Become Regulated
The Association of Finance Brokers (AFB) has recently called on the Government to introduce regulation for the secured loan industry.
Under current legislation, anybody who applies for a mortgage or first charge homeowner loan has the piece of mind in knowing that the company or lender giving the advice is authorised and regulated by the Financial Services Authority (FSA). This means that the person applying for the loan receives a regulated illustration of the particular loan, along with a suitability letter, both of which explain the product in detail, what the full costs and commitments are for the client, including any tie in periods.
Regulation offers borrowers more information and better protection when they apply for what is usually the largest loan commitment they will ever make.
However, this is not the case for second charge loans, or secured loans. These loans still take a legal charge over a borrower’s property, but currently are not regulated. A large number of individuals take out secured loans alongside their main mortgage for a variety of reasons, most often for home improvement or as a debt consolidation loan, but due to the current economic slow down and rising unemployment, many of these loans are falling into arrears, which can eventually lead to a homeowner having their property repossessed, not because of their main mortgage, but due to arrears on their second charge secured loan.
Although the Office of Fair Trading (OFT) has recently issued guidelines for use with secured loan sales practices, the AFB claim that this does not go far enough and that this area of lending should be fully regulated by the FSA, in the same way as first charge mortgage loans are already. The AFB has said that this is the only realistic route for the secured loan industry and would be beneficial, offering more protection for loan companies, loan brokers and borrowers.
