Julian Knight: The FSA fiddles while debt-laden souls burn

City watchdog needs 'stop now' powers to put a quick end to lenders' unfair or exploitative practices and shift the burden of proof
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For the Financial Services Authority, plaudits from the media tend to be thin on the ground. It has, after all, messed up banking supervision and too often failed British consumers since its inception.

But the headlines that greeted the FSA's proposals to prevent mortgage firms from levying charges on customers in arrears, who have agreed a schedule of repayments, would have made pleasant reading at the FSA's lavish headquarters (address 1 Ivory Tower, Canary Wharf, London). The regulator was praised for "getting tough" and "fighting for consumers". In short, taking on the greedy and unfair practice of piling extra debts on those who are so clearly in distress.

On the day, one charity worker told the BBC's Today programme that he had recently come across the case of a woman who was so desperate about her debts that she had attempted suicide. The lender was told about this and was urged not to harass the borrower for the time being. Nevertheless, while she was in hospital the woman's mobile phone was bombarded with aggressive calls. I have heard such stories before, and the most callous bunch are the consolidation loan and remortgage companies. Good on the FSA, then, for getting a grip, I hear you say.

But hang on a minute. The FSA isn't stopping people who are already on skid row facing punitive and disproportionate arrears. Instead, all it wants is for lenders to stop piling charges on people who have already agreed to a repayment schedule. What about the arrears-charges regime itself? And, in particular, the actions of some lenders – highlighted by The Independent on Sunday for the past three years – of charging customers up to £100 for simply putting them in touch with a debt-counselling firm? This is a despicable practice. If borrowers are in trouble then why, when asking for help, are they hit with a charge?

Crucially, the FSA "getting tough" is actually just another set of proposals, which may die a death post election if, as is likely, the Tories get in and the FSA is taken apart piece by expensive piece. This consultation on changes to the mortgage market will now go on for three months. Meanwhile, thousands will see their already unmanageable debts balloon. This three-month delay follows a discussion paper published last October and a market review concluded last June. Tectonic plates move more quickly than the FSA.

Now, the mortgage market is vitally important to our economy and to millions of British consumers, and, yes, reforms have to be carefully thought out to avoid the gargantuan mess of the credit crunch (which occurred on the FSA's watch). But there are some practices that are so patently wrong and damaging to the public good that the regulator has to act, fast. I have long believed that the FSA (or whatever replaces it) should have statutory "stop now" powers. These would allow it to look at the practices of a particular firm or industry and if it suspects them of being unfair or exploitative, bring them to an instant halt. It would then up to the firm or firms to appeal the FSA decision. The idea is to move the burden of proof from the regulator to the firms, and protect consumers at an earlier stage.

On a similar theme, the FSA also announced on Friday that from September 2010 firms will have to publish how quickly, on average, they deal with complaints and what percentage they uphold. This will make interesting reading, and we will see what a crock many firms' complaints-handling actually is (working in customer complaints is the corporate equivalent of Siberian exile in many banks and insurers). Patterns will also emerge to highlight the firms which routinely turn complaints away. Regardless, though, it will have been nearly two and a half years since the FSA released its consultation paper on whether firms should be forced to tell us this most basic of information, allow us all to make better buying decisions.

All in all, the FSA has been given a few pats on the back when it should be told to do more and get a move on.

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