Watchdog warns mortgage lenders who prey on poor

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The Financial Services Authority hit out at financial advisers who sell mortgages to people with poor credit histories yesterday, saying that much of their marketing and promotional literature continued to fall short of regulatory standards.

The regulator has been trying to crack down on misleading or inappropriate advertising in the mortgage market over the past year, and has warned or disciplined a number of brokers.

However, it said yesterday that, in particular, brokers lending to those with bad credit histories - the so-called sub-prime mortgage market - were continuing to fall short. It added that on further investigation, a number of these firms had much wider systemic problems.

Vernon Everitt, the FSA's retail themes director, said: "Financial advertising has a massive influence on the decisions people make. So it must be clear, fair and not misleading, leaving people with a balanced picture of the key pros and cons. This is particularly the case in advertisements by mortgage brokers in the sub-prime market, where people are making one of the most important financial decisions of their lives. We need to see standards here rising - and fast."

Mr Everitt warned the industry that the regulator would not hesitate to continue hunting down and punishing firms that continued to flout the rules.

"We have found that poor advertising is a sign of wider problems in the way mortgage brokers are managed and controlled," he added. "We will continue to intervene where this might be the case, including taking further formal disciplinary action. Firms in this sector should be on notice that this is a priority area for us in assessing whether they are genuinely treating their customers fairly."

The FSA said a number of brokers had failed to accurately disclose their fees in their advertising literature, while a number of the same companies were also selling mortgages to customers at the higher sub-prime lending rates, even though they did not have impaired credit histories.

The regulator has fined around 12 companies over the past two years, for misleading, irresponsible or inaccurate financial promotions, handing out fines totaling more than £1.5m. Almost 1,000 firms have been told to withdraw or amend their advertising and marketing literature.

The regulator is also carrying out a wider investigation into the sub-prime mortgage market, to ensure that consumers are being treated fairly during the sales process. The results of the research are due to be published next summer.