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UK Finance represents around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation takes on most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association. Please go to www.ukfinance.org.uk for wider content and updates from UK Finance.

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Big Brother season: the "secret checks" conspiracy

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Published: 7 September 2011 | Author: Bernard Clarke

You could almost be forgiven for blinking and mistaking the mortgage industry for Sally Bercow last week. In a mortgage version of Big Brother, lenders found themselves accused of snooping inappropriately on their customers. The "secret credit checks" allegations accompanied news reports about the efforts of Northern Rock Asset Management and Bradford & Bingley (UK Asset Resolution) to contact borrowers if changes in their financial profile suggest they may be on the brink of payment problems.

Following the Daily Mail’s initial story, Now banks ring up their cash-strapped customers to warn them: "Ditch mobiles and gym membership or lose your home", which asserted that UKAR was “doing secret credit checks to identify high-risk customers”, there was a flurry of righteous media indignation, including Now the banks are turning into spies from the Express. The Guardian took a more measured line, but nevertheless opined Mortgage advice and spending tips from out of the blue? Scary.

Yet, as far as we can see, the picture of what lenders are doing is both prudent and less dramatic than the coverage suggests.

We contacted a variety of large lenders – including UKAR – and established that all of them operate their customer contact practices in line with their data protection obligations. None undertake credit searches (which are completed at mortgage application stage, when deciding whether or not to lend) as part of their ongoing management of customers’ accounts.

That is not to say that they do not have ongoing access to relevant customer information – such as high level data from credit reference agencies, which can help to identify changes in the conduct of credit accounts. But this does not reveal the minutiae of borrowers’ spending habits.

The lending code  (which applies to consumer credit) explains some of the data that may be available to lenders on an ongoing basis. Indeed, although the code does not cover mortgages, it is worth noting that it outlines, in paragraph 182, the kind of circumstances on a consumer loan where pro-active contact with a borrower might be appropriate:

"If a subscriber becomes aware via their existing systems or from external data feeds (e.g. CRAs) or from information provided by the customer that the customer may be at risk of being in financial difficulties, the subscriber should contact the customer in order to:

  • outline their approach to financial difficulties;
  • encourage the customer to contact the subscriber if the customer is worried about their position;
  • offer the customer appropriate and timely options where possible to help reduce the risk of deterioration in the customer’s financial well-being; and
  • provide signposts to sources of free, independent money advice."

From a prudential perspective, lenders will also need to have a picture of how individual loans are performing throughout their lifespan.

When interest rates rise, some of those people who are currently coping may find it harder to do so – particularly where other economic pressures put the squeeze on income and expenditure. It is therefore right that lenders carefully consider whether, how and when to reach out to borrowers who are not yet in arrears but may face difficulties in the future. This is a subject that the CML has been considering for some time.

In this context, it would be in borrowers’ interests to understand the steps they could take now to help them avoid mortgage problems later, rather than holding off and later finding that they have less capacity to keep their finances on track. The mortgage is classed as a ‘priority debt’ and – as any independent debt counsellor would verify – should be paid over and above any non-priority borrowings, such as credit or store cards.

Prioritising debts and spending is an important part of avoiding mortgage difficulties and repossessions. But the opinion backlash against contacting borrowers before they have missed mortgage payments, as exhibited in the recent furore, is hardly likely to inspire lenders who might be considering such a measure to believe that it would be received in the spirit intended – even if they think it could help customers.

  • What do you believe is the right balance between offering customers help to try to help them avoid financial difficulties, and being too interventionist in their financial affairs? Why not tweet us at @cmlpressoffice to let us know what you think?