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Financial Conduct Authority - Implementation of the Mortgage Credit Directive

We respond to express ABCUL’s support for the proposal to activate the Mortgage Credit Directive’s (MCD) option to exempt credit unions from the new regime. This is in keeping with the government’s policy to minimise the impact of the MCD in light of the measures that have been taken to enhance mortgage regulation in recent years, most notably under the Mortgage Market Review (MMR). Credit unions have limited exposure to mortgage markets, currently lending less than £100 million in mortgage loans and only through a handful of institutions, but where they do they are fully subject to the MMR reforms. We agree that this has created a robust regime for consumer protection. As such we are grateful to the FCA and government for activating this exemption.

As regards the new second charge mortgage regime, equally we appreciate the government and FCA’s proposal to exempt credit unions from the regime. Credit unions are not heavily engaged in this market – indeed we are not directly aware of any credit unions actively engaging in it, though we understand anecdotally that some do on a very limited basis. Notwithstanding this, the decision to activate the exemption is in keeping with the government’s position as regards the implementation of this Directive and also in relation to providing a framework which facilitates the expansion and development of credit unions in order to provide diversity and competition in financial services and to further the provision of ethical and inclusive financial services which also supports the FCA’s remit on competition. This allows credit unions to develop their second charge offering with a level of proportionality thereby facilitating the sector’s growth and the means by which it may seek to serve its members who are predominantly the financially excluded.

As we did with the government’s consultation on MCD, however, we would like to raise an apparent gap in the proposals as far as credit unions’ treatment for second charge lending is concerned in future. While the exemption is welcome and something we strongly support, it is not clear how credit unions are to be treated for such loans in lieu of the MCOB regime and with the CONC material on second charge lending repealed.

It would be greatly appreciated if FCA could use the opportunity of this consultation to clarify if this lending is to be treated similarly to credit unions’ main lending business and be fully exempted from regulation both for consumer credit and mortgage credit purposes or whether some other regime is envisaged. We only seek clarity in order that the credit union sector can proceed under the assurance that it is acting compliantly while fully appreciating and supporting the position that FCA and government has taken to MCD implementation.

The full response can be downloaded on the right hand side.