MCOB 5.7 Business loans
Where the regulated mortgage contract is for a business purpose, a firm may choose to provide a business illustration (in compliance with MCOB 5.7.2 R) instead of complying with MCOB 5.6.
2Firms 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 5.7 if it also follows all other tailored provisions in MCOB.
A business illustration provided to a customer must:
- (1)
use the headings and prescribed text in MCOB 5 Annex 1 (except as provided in MCOB 5.7) but need not follow the format;
- (2)
include the content required by MCOB 5.6.3 R to MCOB 5.6.130 G (except MCOB 5.6.5 R, MCOB 5.6.101 R, MCOB 5.6.109 R to MCOB 5.6.112 G, MCOB 5.6.120 R and MCOB 5.6.121 R);1
- (3)
use the key facts logo followed by the text 'about this [term used by the firm to describe the borrowing, for example 'mortgage']';
- (4)
use font sizes and typefaces consistently throughout the business illustration which are sufficiently legible so that the business illustration can be easily read by a typical customer;
- (5)
ensure that the information is clearly laid out (for example, through the use of bullet points or similar devices to separate information);
- (6)
describe any early repayment charge as an 'early repayment charge' and not use any other expression to describe such charges;
- (7)
describe any higher lending charge as a 'higher lending charge' and not use any other expression to describe such charges; and
- (8)
include the risk warning described in MCOB 5.6.124 R, or an equally clear and effective variation of this reflecting the nature of the regulated mortgage contract.
- (1)
MCOB 5.7.2 R(1) means that firms do not have to follow the ordering of sections set down in MCOB 5.6, although they may choose to do so.
- (2)
In accordance with MCOB 5.7.2 R(8) an example of an appropriate variation to the risk warning would be:'Your home may be repossessed if you are unable to fulfil the terms of this secured overdraft'.
- (3)
A firm may also choose to include other information beyond that required by MCOB 5.6. However, when adding additional material a firm should have regard to:
- (a)
the intended use of the business illustration as an aid to comparison by customers; and
- (b)
the requirement in MCOB 2.2.6 that any communication should be clear,fair and not misleading.
- (a)
- (4)
The business illustration provided in accordance with MCOB 5.7.2 R should be based upon the total borrowing that the firm is willing to provide under the regulated mortgage contract. This means that there is no requirement for a firm to provide a further business illustration (or business offer document ) where a customer redraws against payments made under the regulated mortgage contract, providing this redrawing does not exceed the borrowing described in the original business offer document .
- (5)
MCOB 5.6.6 R(4) requires that where the term of the regulated mortgage contract is open-ended, the business illustration must be based on an assumed term of 12 months and that this assumption must be stated. This does not mean that a firm is limited in the actual term of the regulated mortgage contract. A firm is able to include in the business illustration an explanation that while a 12-month term has been assumed for the purpose of the business illustration, the regulated mortgage contract itself will be open-ended.
Any business illustration provided by a firm must be limited to facilities provided under a regulated mortgage contract.
MCOB 5.6.31 R(2), MCOB 5.6.52 R(1) and MCOB 5.6.52 R(4) prescribe text that should be used to remind a customer with an interest-only mortgage that there is a need to separately arrange for the repayment of capital. The options for repayment of capital may be different where the regulated mortgage contract is for a business purpose, and a firm must vary the prescribed wording in the business illustration to reflect this. One approach may be for the firm to revise the wording to reflect how the customer has said he will repay the capital.
- (1)
When providing a business illustration in accordance with MCOB 5.7.2 R a firm should describe facilities provided under the regulated mortgage contract that are not a loan within section 12 (Additional features) of the business illustration.
- (2)
In complying with (1), a firm should follow the requirements in MCOB 5.6.92 RMCOB 5.6.108 G where these are relevant. Where the facility is of a type not considered in MCOB 5.6.92 RMCOB 5.6.108 G the firm should provide in section 12:
- (a)
a brief description of the facility involved;
- (b)
the term of the facility if different from the term described elsewhere in the business illustration; and
- (c)
a summary of any charges, including any early repayment charges, which apply to the operation of the facility.
- (a)
- (3)
Full information on any facility described in section 12 must be provided in supplementary materials that accompany the business illustration.
- (1)
In accordance with MCOB 5.7.6 R(1), where the regulated mortgage contract includes a loan, the facilities described in section 12 of the business illustration should include the existence of, and a simple explanation of, any all monies charge, any contingent liabilities such as guarantees and so on.
- (2)
Where the regulated mortgage contract includes more than one loan facility (such as a secured loan and a separate secured overdraft facility) the business illustration should be based upon the primary facility and describe any other loan within section 12.