Consumer Credit Act "wealth warnings"

Whenever a firm makes a financial promotion (advertisement) in relation to a mortgage product, it must comply with one of two sets of rules governing how such advertisements should appear. Both sets of rules require the promotion to carry a "risk warning" or "wealth warning" which alerts customers to the fact that they could lose their homes if they take out a loan but then fail to keep up the repayments on it. This page gives information on -

• Text specified by the FSA
• Text specified in the Consumer Credit Act
• What to do where a financial promotion is for a product which features a combination of an FSA-regulated and CCA-regulated loan

Text of warning specified in the FSA's MCOB rules 

Firms will need to decide which rules apply according to whether or not the promotion is for a regulated mortgage contract. If it is, then the rules made by the Financial Services Authority (FSA), and which came into effect on 31 October 2004, will apply. These rules relating to financial promotions appear in section 3 of the Mortgages: Conduct of Business rules - or MCOB 3. 

The definition of a "regulated mortgage contract" is set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001 No 544) as amended by the Financial Services and Markets Act 2000 (Regulated Activities) (Amendments) Order 2001 (SI 2001 No 3544). Basically, a mortgage is a "regulated mortgage contract" if –

• the loan is to an individual or to trustees;
• the loan is secured by a first legal charge on land in the UK; and
• at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling by the borrower or (in the case of credit provided to trustees) by an individual who is a beneficiary of the trust, or by a related person).

MCOB 3 covers financial promotions. MCOB 5 covers the pre-contractual information (Key Facts Illustration, or KFI) which firms must give prospective borrowers before they commit to entering into regulated mortgage contracts. (Similar requirements apply in respect of "lifetime" mortgages - these are set out in MCOB 8 and MCOB 9.) The rules require that prescribed "risk warnings" be featured in certain financial promotions and in the KFI.  

The prescribed text which must be used in financial promotions relating to standard mortgages is set out in MCOB 3.6.13 (3) and MCOB 5.6.124. It is: 

"Your home may be repossessed if you do not keep up repayments on your mortgage."

Different prescribed wording applies to lifetime mortgages. MCOB 3.6.13 (1) provides that financial promotions should carry the following warning:

"This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration."

The wording which must be used in a KFI for a lifetime mortgage is set out in MCOB 9.4.33 (8) and is: 

"Check that this mortgage will meet your needs if you want your family to inherit your home. If you are in doubt, seek independent legal and financial advice."

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Text of warning specified under the Consumer Credit Act 
 
If a promotion is not for a loan which fits the definition of regulated mortgage contract, then the rules made under the Consumer Credit Act 1974 will apply.  The relevant Regulations are the Consumer Credit (Advertisements) Regulations 2004 (SI 2004 No 1484). These regulations came into force on 31 October 2004.  They set out a range of warnings for secured loans of various types, including equity release. The most common warning for a secured loan is: "Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it."

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There may be circumstances where a product features more than one component and where both the FSA and CCA rules on financial promotions therefore apply. In such circumstances, it is not necessary to include both the FSA- and CCA-prescribed warnings: but if just one is used, it should be the CCA one. There are four circumstances where this may apply.

Where a promotion refers to a combination of FSA- and CCA-regulated loans, the following general CCA warning should be used:

"Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it."

If the promotion is for a product which combines a loan for a lifetime mortgage or home reversion plan with a CCA-regulated product, the CCA warning which should be used is:

"Check that this mortgage will meet your needs if you want to move or sell your home or want your family to inherit it. If you are in any doubt, seek independent advice."

If the promotion refers to paying off unsecured debts by taking out a secured loan, and part of the product features a CCA-regulated loan, the CCA warning which should be used is:

"Think carefully before securing other debts against your home." 

If the promotion is for a product denominated in a currency other than sterling, the FSA- and CCA-prescribed warnings are the same and are: 

"Changes in the exchange rate may increase the sterling equivalent of your debt."

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