Disclosure at the offer stage

Part

MCOB Mortgages: Conduct of Business

Chapter

Disclosure at the offer stage

Printed on: 14/10/2024

Rulebook at: 01/04/2006

MCOB 6

Disclosure at the offer stage

MCOB 6.1

Application

01/12/2004

Who?

MCOB 6.1.1

This chapter applies to a firm in a category listed in column (1) of the table in MCOB 6.1.2 R in accordance with column (2) of that table.

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MCOB 6.1.2

This table belongs to MCOB 6.1.1R

(1) Category of firm

(2) Applicable section

mortgage lender

whole chapter

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What?

MCOB 6.1.3

This chapter applies with respect to an offer made by a firm to a customer with a view to the firm:

(1) entering into a regulated mortgage contract; or
(2) varying the terms of a regulated mortgage contract entered into by the customer in any of the following ways:

(a) adding or removing a party;
(b) making a further advance; or
(c) switching all or part of the regulated mortgage contract from one interest rate to another;

(whether or not the customer agrees to enter into the regulated mortgage contract or variation).

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MCOB 6.1.4

In relation to a regulated lifetime mortgage contract, this chapter, MCOB 6, is modified by MCOB 9 (Lifetime mortgages: product disclosure).

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MCOB 6.1.5

In MCOB 6, a reference to an offer to enter into a regulated mortgage contract is to be read as including a reference to an offer to vary an existing regulated mortgage contract in a manner specified in if the context so requires.

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MCOB 6.1.6

Firms may diverge from the requirements in MCOB 5.6 (Content of illustrations) where necessary to reflect the fact that they are providing an illustration for a variation as part of an offer document.

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MCOB 6.2

Purpose

01/12/2004

MCOB 6.2.1

(1) MCOB 6 amplifies Principle 6 and Principle 7, which require a firm to pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. The purpose of MCOB 6 is to ensure that a customer receives a clear offer document to enable him to check the features and price of the regulated mortgage contract before he enters into it. The offer document should include an updated and suitably adapted illustration so that the customer can compare it with the illustration he received before he applied for the regulated mortgage contract.
(2) To ensure that the customer has a record of the information required by MCOB 6, MCOB 6.3.2 R requires the information to be provided to the customer in a durable medium.

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MCOB 6.3

General

01/12/2004

MCOB 6.3.1

MCOB 2.2.6 R (Clear, fair and not misleading communication) applies to information provided to a customer by a firm in accordance with this chapter.

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MCOB 6.3.2

Any communication required by MCOB 6 to be provided to a customer by a firm must be in a durable medium.

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MCOB 6.4

Content of the offer document

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MCOB 6.4.1

(1) If a firm offers to entering into a regulated mortgage contract with a customer, it must provide the customer with an offer document containing an illustration.
(2) The firm's offer in the offer document must be on the basis of the information set out in the illustration provided in accordance with (1).

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Accuracy of the offer document

MCOB 6.4.2

MCOB 5.4.7 G acknowledges that the offer document and illustration provided before an application may not always be the same, even where the customer's requirements have not changed. However, the FSA expects the offer document to be an accurate reflection of the actual costs of the regulated mortgage contract.

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Records

MCOB 6.4.3

(1) A firm must make an adequate record of each offer document which it issues to a customer in accordance with MCOB 6.
(2) The record required by (1) must be retained for a year from the date that the offer document is issued to the customer.
(3) If, in accordance with MCOB 6.5 (Information to be provided in the offer document or separately), information is included in a separate document that is sent with the offer document, that information must also be retained as part of the record required by (1).

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Modifications to the illustration

MCOB 6.4.4

The illustration provided as part of the offer document in accordance with MCOB 6.4.1 R (1) must meet the requirements of MCOB 5.6 (Content of illustrations) with the following modifications:

(1) the illustration must be suitably adapted and revised to reflect the fact that the firm is making an offer to a customer and updated to reflect changes to, for example, the interest rate, charges, the exchange rate or the APR required by MCOB 10 (Annual Percentage Rate), at the date the illustration is issued;
(2) MCOB 5.6.2 R (2) (a) does not apply;
(3) MCOB 5.6.15 R (Information to be included at the head of the illustration) does not apply;
(4) MCOB 5.6.16 R (Section 1: 'About this illustration') is replaced by the following: "Section 1: 'About this offer document': Under the section heading 'About this offer document', the following text must be included:

(a) 'You are not bound by the terms of this offer document until [insert relevant circumstances, including the names of any documents that must be signed. For example "you have signed the legal charge and the funds are released for your mortgage"]. We are required by the Financial Services Authority (FSA) - the independent watchdog that regulates financial services - to provide you with this offer document.'; and
(b) (unless MCOB 6.6.1 R applies) "You should compare this offer document with the key facts illustration given to you before you applied for this mortgage, to see how the details may have changed.'";

(5) Unless (b) applies, MCOB 5.6.17 R (Section 2: 'Which service are we providing you with?') is replaced with the following: "Section 2: 'Which service did we provide you with?'

(a) Under the section heading 'Which service did we provide you with?' the following text should be presented as two options each with a 'check box', one of which must be marked prominently to indicate the level of service provided to the customer: 'We have recommended, having assessed your needs, that you take out this mortgage. We have not recommended a particular mortgage for you. You must make your own choice whether to accept this mortgage offer.'";
(b) If the service described in MCOB 5.6.17 R (Section 2: 'Which service are we providing you with?') was provided by another firm, MCOB 5.6.17 R is replaced by the following: "Section 2: 'Which service were you provided with?' Under the section heading 'Which service were you provided with?' the following text should be presented as two options each with a 'check box' one of which must be marked prominently to indicate the level of service provided to the customer: '[name of firm] recommended that you take out this mortgage. [name of firm] did not recommend a particular mortgage for you. You must make your own choice whether to accept this mortgage offer.'";

(6) MCOB 5.6.29 R (2) does not apply;
(7) MCOB 5.6.52 R to MCOB 5.6.53 G is replaced by the following: Where all or part of the regulated mortgage contract is an interest-only mortgage, the illustration in the offer document must:

(a) clearly state that the payments on the regulated mortgage contract cover only interest, and not the capital borrowed;
(b) state the repayment vehicle the customer intends to use where the firm knows details of the specific repayment vehicle from the application by the customer; if the firm does not know how the customer intends to repay the capital borrowed, the firm must clearly state that the repayment vehicle is unknown, and must provide the customer with a clear reminder of the need to put suitable arrangements in place; and
(c) include a statement reminding the customer to check regularly the performance of any investment used as a repayment vehicle, to see whether it is likely to be adequate to repay the capital at the end of the term of the regulated mortgage contract;

(8) the fees recorded in the illustration that is part of the offer document in accordance with MCOB 5.6.66 R (1) must include any fees paid or payable by the customer;
(9) MCOB 5.6.69 R (5) is replaced by the following:'(where the fee is payable or has been paid to the mortgage lender), whether or not the fee is refundable, and if so, the extent to which it is refundable;'
(10) details of insurance which the customer has chosen to take out through the firm, whether or not this insurance was included in the illustration provided in accordance with MCOB 5 (Pre-application disclosure), must be included in Section 9 of the illustration that is part of the offer document;
(11) where additional features are included in accordance with MCOB 5.6.92 R and these are credit facilities regulated by the Consumer Credit Act 1974, the relevant parts of Section 12 of the illustration that is part of the offer document must include the following text: "This credit facility is regulated under the Consumer Credit Act 1974. Please refer to the separate credit agreement which describes the facility and the terms on which the credit is available";
(12) The text required by MCOB 5.6.102 R (2) (a) or (b) should be adapted to include, or tell the customer where they can find, the information required by MCOB 6.5.4 R; and
(13) MCOB 5.6.113 R applies to the illustration that is part of the offer document if the illustration given out in accordance with MCOB 5 (Pre-application disclosure) was issued by, or on behalf of, a mortgage intermediary.

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MCOB 6.4.5

(1) One consequence of MCOB 6.4.4 R(5)(b) is that the mortgage lender will need to know, for each individual transaction arranged by a mortgage intermediary, whether or not the customer has received advice from that mortgage intermediary.
(2) When complying with MCOB 6.4.4 R(5)(b), mortgage lenders may wish to include a statement after the level of service in Section 2 confirming that the level of service described was given by another firm, and explaining that they, as the mortgage lender, are not responsible for the level of service given, and that the customer should contact the other firm if they have any queries about the level of service provided. For example: "If you have any queries about this service, you should contact [Name of firm]. [Name of lender] is not responsible for the advice or information you received."

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MCOB 6.4.6

In adapting and revising the illustration that is part of the offer document in accordance with MCOB 6.4.4 R(1) a firm must:

(1) avoid amending the format of the information required by MCOB 5.6 (Content of illustrations) where possible, since this could result in the illustration in the offer document being difficult to compare with the illustration originally provided to the customer in accordance with MCOB 5.5.1 R;
(2) use, where possible, the same headings, ordering of information, and language that appeared in the illustration provided in accordance with MCOB 5.6 (Content of illustrations); and
(3) only change section headings where necessary (for example 'What you have told us' could be renamed 'Your mortgage requirements').

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MCOB 6.4.7

In adapting and revising the illustration in accordance with MCOB 6.4.4 R(1), a firm may:

(1) add extra information at the beginning and end of the illustration, such as conditions which are not covered by the illustration;
(2) include greater detail within each of the specified sections than that included in an illustration provided in accordance with MCOB 5 (Pre-application disclosure); and
(3) leave blank, except for the text 'not applicable', sections that are irrelevant, such as:

(a) the section on insurance (see MCOB 5.6.73 R to MCOB 5.6.83 G), where the customer is not buying insurance from the firm and the firm does not require insurance to be in place; and
(b) the section and sub-sections on additional features (see MCOB 5.6.92 R to MCOB 5.6.112 G) if there are no additional features available.

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MCOB 6.4.8

Examples of the additional information that should be included in the offer document in accordance with MCOB 6.4.7 R (1) or MCOB 6.4.7 R (2) is information about any retentions or reinspections that will be required by the firm.

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MCOB 6.4.9

A firm must ensure that the illustration forms the main, and an integral, part of the offer document.

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MCOB 6.4.10

MCOB 6.4.9 R prevents a firm from preparing a separate illustration and simply adding it to the existing material provided to the customer at the offer stage.

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Other information contained in the offer

MCOB 6.4.11

A firm must ensure that the offer document contains a prominent statement:

(1) of the period for which the offer is valid;
(2) explaining, where the regulated mortgage contract contains features, such as additional unsecured borrowing facilities, which could result in the customer borrowing more money, that where such features are used, the amount of the customer's debt will increase;
(3) explaining when any interest rate change on the regulated mortgage contract takes effect. This statement must be used, for example, to explain cases where an annual review system is used;
(4) explaining the consequences that might arise from the customer not entering into the regulated mortgage contract, including any fees that the customer has paid which will not be reimbursed;
(5) explaining that once the regulated mortgage contract is concluded there will be no right of withdrawal; and
(6) explaining that although no right of withdrawal exists the customer will have a right to repay the regulated mortgage contract in accordance with the terms of the regulated mortgage contract.

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MCOB 6.4.12

In complying with MCOB 6.4.11 R (6) the firm is not required to repeat in this section of the offer document the cash amounts of the early repayment charges set out in the illustration provided as part of the offer document. The firm may instead insert a reference to the relevant section of that illustration.

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MCOB 6.4.13

A firm must ensure that the contact details section of the offer document (as required by MCOB 5.6.122 R) also includes information on how to complain to the firm about the services provided by the firm in relation to the regulated mortgage contract and whether or not complaints may subsequently be referred to the Financial Ombudsman Service.

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MCOB 6.4.14

DISP 1.2.1 R requires a firm to have in place a complaints handling policy for handling complaints about its services, and also for referring to another firm complaints about that other firm's services.

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MCOB 6.4.15

In addition to the information required by MCOB 6.4.13 R, a firm may include information about how to complain to any other firm about the services that firm provided to the customer in relation to the regulated mortgage contract. For example, where the customer received advice from another firm, a mortgage lender may include contact details for the firm that provided the advice.

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MCOB 6.4.16

If the firm knows at the point that the offer is made to the customer that its interest in the regulated mortgage contract will be assigned (by sale or transfer) and the firm will no longer be responsible for setting interest rates and charges, the offer document must:

(1) state this; and
(2) state, where known, who will be responsible for setting interest rates and charges after the sale or transfer.

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MCOB 6.4.17

Where MCOB 6.4.16 R applies, if the name of the party who will be responsible for setting interest rates and charges after the sale or transfer is not known at the point the offer is made, the firm must notify the customer of this as soon as it becomes known.

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MCOB 6.4.18

MCOB 6.4.16 R and MCOB 6.4.17 R could apply where the ownership of a regulated mortgage contract is transferred to a third party through securitisation.

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MCOB 6.5

Information to be provided in the offer document or separately

01/12/2004

Tariff of charges

MCOB 6.5.1

If a firm makes an offer to a customer with a view to entering into a regulated mortgage contract, it must provide the customer, along with the offer document, with a tariff of charges that could be incurred on the regulated mortgage contract.

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MCOB 6.5.2

If the regulated mortgage contract has any linked borrowing or linked deposits, details of the charges on these linked facilities, for example charges payable on a linked current account, must be included in the firm's tariff of charges.

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MCOB 6.5.3

A firm may include the tariff of charges as an integral part of the offer document, or provide it separately along with the offer document.

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Mortgage credit cards

MCOB 6.5.4

If a firm makes an offer to a customer with a view to entering into a regulated mortgage contract that includes a mortgage credit card, it must provide the customer with information explaining that the card will not give the customer the statutory rights associated with traditional credit cards.

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MCOB 6.5.5

A firm may include the information described in MCOB 6.5.4 R as an integral part of the offer document, or provide it separately along with the offer document.

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Distance contracts with retail customers

MCOB 6.5.6

If a firm makes an offer to a retail customer with a view to entering into a regulated mortgage contract a which is a distance contract, it must provide the retail customer with the following information with the offer document:

(1) the EEA State or States whose laws are taken by the firm as a basis for the establishment of relations with the customer prior to the conclusion of the regulated mortgage contract;
(2) any contractual clause on law applicable to the regulated mortgage contract or on competent court, or both;
(3) the language in which the contract is supplied and in which the firm will communicate during the course of the regulated mortgage contract; and
(4) if not provided previously:

(a) all of the contractual terms and conditions of the regulated mortgage contract to which the offer document relates; and
(b)

(i) confirmation that the mortgage lender is authorised and regulated by the FSA;
(ii) the mortgage lender's FSA register number; and
(iii) confirmation that the customer can check the FSA register on the FSA's website www.fsa.gov.uk/register/ or by contacting the FSA on 0845 606 1234.

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MCOB 6.6

Offer documents in place of illustrations

01/12/2004

MCOB 6.6.1

If a firm provides a customer with an offer document in place of an illustration in accordance with MCOB 5.5.1 R (3), it must take reasonable steps to ensure that it provides the offer document in accordance with the requirements for providing an illustration in MCOB 5.4 (Illustrations: general) and MCOB 5.5 (Provision of illustrations).

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MCOB 6.7

Business loans

01/12/2004

MCOB 6.7.1

(1) Where the regulated mortgage contract is for a business purpose, a firm may choose to provide a customer with a business offer document instead of the offer document referred to in MCOB 6.4.1 R.
(2) If a firm provides a customer with a business offer document in accordance with (1), it must ensure that:

(a) an updated business illustration, as required by MCOB 5.7 (Pre-application disclosure for business loans), forms part of the business offer document; and
(b) subject to the tailoring required by MCOB 5.7 (Pre-application disclosure for business loans), the business offer document complies with MCOB 6.4 (Content of the offer document).

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MCOB 6.7.1A

Firms are reminded that in accordance with MCOB 1.2.3 R, they should either comply in full with MCOB or comply with all tailored provisions in MCOB that relate to business loans. Therefore, a firm may only follow the tailored provisions in MCOB 6.7 if it also follows all other tailored provisions in MCOB.

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MCOB 6.7.2

MCOB 6.7.1 R (2) means, for example, that the required text in MCOB 6.4.4 R (7) should be replaced by text that satisfies the requirements for business illustrations in MCOB 5.7.5 R

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MCOB 6.7.3

A firm may supplement the first paragraph of text prescribed in MCOB 6.4.4 R (5)(a) to clarify that, while the regulated mortgage contract is not binding until the relevant mortgage document has been signed and funds have been released, the business offer document may form part of a wider set of negotiated facilities and that the customer is separately bound by these.

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