The financial watchdog has told over 200 mortgage brokers to scrap misleading ads. For some, the home-loan market is like the Wild West!
Although financial watchdog the Financial Services Authority (FSA) has been regulating the mortgage market for over two years, there are still lots of dodgy dealings going on.
When the FSA took over the regulation of mortgages on 31 October 2004, it immediately began taking action to improve the treatment of customers by bringing rogue firms in line. Nevertheless, numerous mortgage lenders and brokers continue to break the rules, particularly in the sub-prime sector.
The number of sub-prime (or impaired-credit) mortgages has soared in recent years, as lenders rush to win business from borrowers who find it difficult to get credit on the high street. Given that around one in six adults (eight million people) have trouble obtaining mainstream credit, there are rich pickings to be made in the impaired-credit market.
Predictably, some firms in this sector go too far, and end up preying like greedy vultures on financially unsophisticated borrowers, low-income workers and other underprivileged members of society. Indeed, the FSA has warned that poor financial advertising in the sub-prime market is just the tip of the iceberg and is a sign of much deeper problems.
Over the past year, the FSA has been working on improving the standards of advertising and other promotional materials for sub-prime mortgages. The FSA requires all financial advertising for FSA-regulated products to be clear, fair and not misleading, but this rule is widely flouted. Over the past year, the FSA has reviewed hundreds of adverts, flyers and brochures, and has ordered more than two hundred mortgage brokers to withdraw or amend misleading ads!
What's more, when the FSA visited the worst offenders this October and November, it discovered that mortgage brokers which produce poor advertising and promotional materials were also found to have inadequate systems and controls to manage their businesses. Several of these firms have now been referred for more serious enforcement action.
(For the record, if you see a financial advertisement which you consider to be misleading, you can report it by filling in this reporting form or by calling the FSA's Financial Promotions hotline on 08457 300 168.)
Of course, choosing a mortgage is one of the most important financial decisions that consumers make, so it's crucial to be given the right information to act on. Clearly, this isn't happening in the dirty end of the mortgage market, where standards need to start rising -- and fast. The good news is that the FSA views the sub-prime market as a priority area for enforcement, so watch this space for news of huge fines being levied on a few awful firms!
Here's my idea: any mortgage or secured loan which is sold using unclear, unfair or misleading advertising should become entirely unenforceable. In other words, if a deceived borrower defaults on a dodgy home loan, the lender cannot take legal action to recover the outstanding debt, nor can it repossess the property on which the loan was improperly secured. In my view, this would instantly clean up the mess in the sub-prime market!
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