Background to Bill:

• This Bill will extend the FSA’s regulatory powers to cover home reversion plans and their Sharia compliant equivalents (Ijara).
  
• The legislation is intended to help consumers make better choices, improve consumer protection and create a level playing field in the equity release market.
  
  
• The FSA already covers most aspects of mortgage regulation and this Bill will fill the gaps so that consumers can be assured of proper protection.
  
  
• In the eyes of the government, buying an equity release scheme is a big decision (with tax, inheritance and long-term financial planning implications) and one group particularly at risk is the elderly.
  
  
• Specifically the Bill will "extend valuable consumer protection" to the elderly; provide Sharia compliant products that will benefit from FSA regulation; allow "people to make informed choices" about the products they buy; and ensure a "level regulatory playing field".

Summation of Responses:

Association of British Insurers

The ABI welcomes the government’s intention to regulate Home Reversion Plans  

Regulation of HRPs by the FSA would: 

• remove the potential for regulatory arbitrage and possible resultant abuse in the equity release market
• facilitate provision and use of equity release products:
• provide consumers with rights of redress and compensation from the Financial Ombudsman Service and the Financial Services Compensation Scheme.

Risks to vulnerable consumers arising from continued lack of regulation: 

• they may have an impact on the individual’s wider financial position
• potential mis-selling could result in pensioners being thrown totally back on the state for their means of survival
• there is scope for abuse in the marketing, selling, terms and guarantees for HRPs, and hence a need for regulation of intermediaries and redress and compensation through the regulatory regime.

Conclusion

"Any delays now will further delay the start of this already lengthy process and bring the risk of undesirable impact on consumers.  It also risks a loss of trust in a potentially valuable financial product for elderly people.  This is at a time when expressed government intention is to increase confidence in saving and in increased self-reliance during retirement." 

Council of Mortgage Lenders

The CML welcomes the measures brought forward within the Bill to regulate home reversion schemes through the FSA. 

We believe that if the government had decided not to regulate home reversion schemes there would be:

• a significant risk of consumer detriment 
• consumers would be confused by the apparent regulatory double standard
• a risk of skewing the market simply because of the regulatory differences 

We also welcome the use of the Bill to bring Ijara products into the scope of the FSA.  However, we hope that Ijara products will be regulated as normal regulated mortgage contracts rather than as equity release products since that is what they are closest to and are not normally sold to older people.

Which?

• Welcomes the bill which will close the loophole which exempts some equity release schemes from regulation. 
   
• It will also bring all Sharia compliant equivalents products (Ijara) under Financial Services Authority (FSA) regulation.

Why the bill is needed: 

• Until now, a regulatory loophole meant that people buying home reversion schemes haven’t had the same protection as those buying the other main type of equity release, known as Lifetime mortgages. 

What the new legislation will mean to consumers: 

• When the legislation becomes law, consumers buying all equity release products will have access to the Financial Ombudsman Scheme (FOS) in case of complaints. 
   
• The Financial Services Authority (FSA) will also be regulating and monitoring the products and how they are sold.

Further:  

• Which? is calling on Parliamentarians to put pressure on companies who mis-sold home income plans in the 1980s to freeze the interest now and help those vulnerable consumers.

The Positions in Full: 

The Association of British Insurers

The Council of Mortgage Lenders

Which?