The Financial Services Authority (FSA) has penalised three firms found failing to meet its requirements during its sub-prime investigations published in July. All three had inadequate mortgage sales and advice procedures which exposed their customers to the risk of receiving unsuitable advice.
The FSA has fined The Loan Company trading as Greenhill Finance (TLC) £31,500 and Next Generation Mortgages Limited (NGM) £10,500. It has also stopped Homebuyer Securities Limited (HSL) from trading.
The FSA investigations found various failings in the firms which include the following:
- both TLC and NGM failed to correct record keeping failings identified during FSA visits in 2005. They also did not gather adequate customer information to assess affordability or support the mortgage recommendations made;
- TLC did not adequately train its staff, failed to monitor or review client files properly and gave customers inconsistent information about the key features of the product;
- NGM could not demonstrate why recommendations were made and it failed to explain the details or risks of recommended mortgages to customers; and
- HSL did not ensure that all of its advisers were qualified to give mortgage advice.
As a result of their failings NGM has agreed to stop selling self-certification mortgages, which require no verification of income by lenders, due to FSA concerns and HSL has agreed that its director will never work as a mortgage broker again. All three firms have been required to conduct a past business review to identify whether customers have suffered losses as a result of receiving unsuitable advice.
Margaret Cole, FSA Director of Enforcement, said:
"Firms who do not comply with FSA standards taint the entire mortgage industry which is totally unacceptable. Any firms who place their customers at risk of receiving unsuitable advice through inadequate business processes can expect strong action from the FSA. Firms must ensure they have appropriate systems to protect their customers.
"There are a number of actions we can take against firms and individuals which includes fines, public censures or stopping firms and/or individuals from doing business. In addition to these penalties we can also instruct a firm to conduct a detailed and lengthy review of their clients' files. This will establish if any customers are owed redress and could cost firms many thousands of pounds."
TLC and NGM agreed to settle at the first stage of the FSA's investigation therefore qualifying for a 30% discount. Were it not for this discount their fines would have been £45,000 and £15,000. The failings at TLC occurred during June 2005 to November 2006, between June 2005 and January 2007 at NGM and between October 2004 and February 2007 at HSL.
The firms' failings were found during the FSA's work on the sub-prime mortgage market looking at responsible lending practices and firms’ assessments of a consumer’s ability to afford a mortgage. As a result five firms were referred to enforcement. The work is available on the FSA's website.
Any customers who feel they have received unsuitable advice should call the FSA’s Consumer Helpline on 0845 606 1234.
Background
- The Final Notices for The Loan Company, Next Generation Mortgages Limited and Homebuyer Securities Limited are available on the FSA's website.
- The Loan Company is a loan and mortgage brokerage firm that mainly operates in the sub-prime market. It is based in Sandbach, Cheshire.
- Next Generation Mortgages Limited is a small mortgage broker that mainly operates in the sub-prime market. It is also authorised to advise on and arrange insurance contracts. It is based in Cardiff.
- Homebuyer Securities Limited (HSL) was a small firm selling mortgages and general insurance and was based in Redditch, Worcestershire. The FSA stopped HSL trading in February 2007. The FSA made HSL pay for a past business review even though it had stopped trading in support of its consumer protection objective.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.
