FSA to act against sub-prime lenders

The Financial Services Authority has started enforcement action against five firms it accuses of having weaknesses in responsible…

The Financial Services Authority has started enforcement action against five firms it accuses of having weaknesses in responsible lending practices and in their assessment of a consumer's ability to afford a mortgage, the regulator said.

The companies - the names of which were not disclosed - were part of a regulatory review of 11 intermediaries and lenders representing 50 per cent of all subprime mortgage sales. They were initially identified as having to improve in 2005 but failed to do so, the FSA said.

The regulator found "significant numbers" of people were advised by intermediaries to remortgage their homes, thereby incurring early repayment charges, without the adviser being able to demonstrate doing so was in the customer's best interests.

It also found in a third of files reviewed there was an inadequate assessment of consumers' ability to afford the mortgage given and in nearly half of all cases there was inadequate assessment of customers' suitability.

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It said some lenders failed to monitor the application of their policies, which led to the approval of potentially unaffordable mortgages, adding some lenders had failed to check the plausibility of customers' information, as required by their own lending policies.

"We are very concerned about these findings. Consumers in the sub-prime market are vulnerable people who may have high debts or a bad credit history. It is therefore important that they are properly assessed and advised."

"We will not hesitate to take action where we find bad practice," said Clive Briault, managing director of the FSA's Retail Markets division. "Poor sales practices in this market may lead to serious wider consequences."