The Financial Services Authority is due to start regulating most mortgage advertising and selling on 31st October 2004. We report on the new “Mortgage Conduct and Business Rules” and helpful FAQ’s on the approaching mortgage telemarketing regime.
Topic: Financial services
Who: The Financial Services Authority
When: November 2003
From 31 October 2004, the Financial Services Authority will for the first time regulate the marketing, selling and providing of most types of mortgage. From Halloween 2004, therefore, only those who have been properly authorised by the FSA to sell and provide mortgages, or entities acting on their behalf, will be able to advertise and sell mortgage products compliantly.
All those wanting to sell mortgages beyond 30 October 2004 can now register with the FSA for an application pack. From January 2004, applications for authorisation can be lodged with the FSA, to be effective from 31 October 2004.
"Soft opt-in" for cold calls
Another significant change which will come about from 31 October 2004 courtesy of the new Mortgage Conduct of Business Rules ("MCOB") will be in the area of telephone marketing or what the FSA call "real time marketing approaches".
Existing legislation includes no specific rule covering cold calls marketing mortgages, although consumers can register with the statutory telephone preference service ("TPS") not to receive such calls. The FSA proposal is that from 31 October 2004 there will be a ban on cold or unsolicited calls for the purposes of selling most types of mortgage, unless the consumer has an established, existing customer relationship with the caller such that the consumer envisages receiving unsolicited calls selling mortgages.
Solicited calls OK
If they are solicited, such calls will be OK. This will apply where the call is either initiated by the consumer or in response to an express request from the consumer. It must also be clear to the consumer that during the course of the call in question, mortgages will be discussed.
So what are the implications of this significant move? The FSA has published helpful "Frequently asked questions on the MCOB rules" which are available on the FSA website.
These deal with a number of key questions.
Data from lifestyle questionnaires
For instance, what about data collected through lifestyle questionnaires, where individuals have expressed an interest in receiving information or advice on how to review their mortgage arrangements. The collector of the lifestyle data will then make the response data available to third parties who want to use it for marketing purposes. In such a case, will an ensuing call from a mortgage seller be "solicited" or "unsolicited"?
The FSA answer is that as long as the consumer has expressed an interest in receiving information or advice from a named firm and it is that firm only that contacts him for exactly that purpose, the call may properly be described as "solicited".
The key factor is that the approach must meet the "express request" requirement of the MCOB. In particular, firms should not infer an "express request" from the consumer signing up to a long and detailed set of terms in which a mortgage review request is buried. On the contrary, the consumer will have had to "clearly and consciously" request the review.
Data from other third parties
The same will apply to a semi analogous situation, where it is a financial services company such as a credit card provider that has initially obtained personal data from a consumer and wants to make this data available to third parties who might want to sell mortgages. This may be done on the basis of contractual clauses, such as the terms and conditions of the card issuer, which say that information on additional products or services may be supplied as the credit card issuer thinks appropriate.
As with the lifestyle questionnaire scenario above, an ensuing cold call about mortgages from a third party, using data about the prospect obtained from the credit card issuer, will not be legal unless the consumer had consciously accepted that a named third party could call him about these services.
Existing relationships/soft opt-in
What about existing customer relationships? Here cold calls can be made offering mortgages provided the circumstances are such that the consumer can be taken to envisage receiving such calls.
Various scenarios are likely to arise. The FSA says that the emphasis is on relationships that have been maintained over a long period of time and there is regularity of contact.
It cites the example of a broker who has arranged a mortgage for a consumer once several years ago and has not kept in contact with that consumer since the conclusion of the mortgage. In such a case, the FSA says it will be difficult for the firm to show that there is an established existing customer relationship. In such a case, the only way that a call can be made about mortgages is on the basis of the consumer expressly requesting that such a call is made – in other words for the call to be "solicited".
Are calls "envisaged"?
So assuming there is an existing customer relationship and "unsolicited" cold calls to sell mortgages do appear to be on the cards, how can the marketer establish that the recipient envisages that such calls will be made?
The FSA again emphasises that it would not be acceptable for a firm to hide information about the possibility of such calls being made in standard terms and conditions – it must specifically bring the possibility of these calls being made to the customer's attention so that the consumer must expect to be called in the future to discuss mortgage arrangements. In the FSA's view, an un-ticked opt-out box against suitable and prominent disclosures along these lines, should be sufficient to create a scenario in which these calls are envisaged by the consumer.
Passing express call requests to third parties
The FSA then goes on to deal with the question of whether an express request for a call can be passed to another firm. The FSA's answer to this is firmly in the negative, unless the consumer has expressly agreed or opted into a named third party contacting them. Blanket express requests are not acceptable, so that market research agencies or lifestyle questionnaires used to obtaining these for authorised firms must make it clear on whose behalf they are operating and name the firms who are likely to call.
How long can a request be relied on?
A related question is how long an "express request" to receive calls about mortgages will continue to be valid. Unsurprisingly, the FSA says here that the longer the period of time between obtaining an express request and a firm calling a consumer, the more likely it is that the firm will be unable to rely on the express request. It would depend on the circumstances. In the context of an express request gained through market research or lifestyle questionnaires, for example, the validity of the request is likely to expire in a short time.
The TPS factor
What happens if a consumer who has previously expressed a request to receive marketing calls subsequently registers with the TPS? All telephone marketers are legally obliged to consult the TPS list to ensure that the numbers they are about to call are not numbers of the individuals who have opted-out of receiving calls. The FSA's answer on this question is that if, subsequently to making an express request to receive a call or becoming an existing customer who envisages receiving such calls, an individual registers with the TPS, this registration overrides any previous consent/request.
Why this matters:
Whilst the Mortgage Conduct of Business Rules themselves are not an easy read, the FAQs are useful in the area of cold calls. They are also useful in another context, namely the interpretation and application of the detailed opt-in/soft opt-in rules that now apply to digital marketing under the Privacy and Electronic Communications (EC Directive) Regulations 2003. What the FAQs say about the circumstances in which a call is "solicited" or "unsolicited" and how an express request can be provided shed helpful light on how the courts might approach the question of whether an individual has "previously notified the sender" that he consents for the time being to emails being sent to him, for example.