FSA to protect sale and rent back customers

The Financial Services Authority (FSA) has today published the details of the regime that it aims to introduce on 1 July to tackle immediate problems for customers in the sale and rent back (SRB) market.

This follows HM Treasury's announcement yesterday that it is extending the scope of FSA regulation to include SRB, as it considers this to be the most appropriate way of ensuring consumer protection in this market.

This supports the recommendation made last year by the Office of Fair Trading (OFT), following a market study which found that sale and rent back deals had the potential to cause serious harm to homeowners who are often already in a vulnerable position.

A recent FSA survey of 2,006 adults aged 18 and over interviewed across Great Britain found that:

only 42% of those surveyed knew that SRB is currently unregulated (meaning that people who currently take part in these schemes do not benefit from the protection afforded by the Financial Ombudsman Service if needed);

the majority thought they would be entitled to stay in their home for more than five years (whereas the typical contract is six to 12 months); and

the majority (58%) surveyed thought SRB should be regulated.

The FSA is taking a two stage approach to regulating the SRB market. An interim regime will be brought in as soon as any statutory changes come into force (expected on 1 July) in order to address the most immediate problems for consumers, followed by a more comprehensive regime which will start on 30 June 2010.

Ed Harley, FSA head of mortgage policy, said: "We know that some consumers enter into sale and rent back arrangements without understanding the costs and risks involved. This can be a source of real distress for people in already difficult circumstances. Firms entering our regime will need to run their business in a way that means customers are treated fairly. This includes making clear to customers important details, such as the length of time they can stay in the property, before they enter into the arrangement."

Under the interim regime firms will need to meet FSA threshold conditions including the requirement to have adequate resources and to be run by fit and proper people. Firms will also have to comply with the Principles for Businesses and meet a number of systems and controls and conduct of business rules.

Firms that are currently unauthorised and that intend to carry on any of the new SRB regulated activities after the commencement of the interim regime will need to apply for interim permission. Similarly, firms that are currently authorised for other activities will need to apply for interim variation of permission. Firms are encouraged to start preparing now for authorisation and to apply as soon as the interim regime starts.