The Financial Services Authority has publicly censured Principal Mortgage Services Limited, a Worcester-based mortgage broker, for failing to give suitable advice on interest-only mortgages.
It has also banned the director, Terence Harrop, from working in regulated financial services.
PMSL recommended customers take out an interest-only mortgage with an accelerator product called the Flexible Repayment Plan.
The plan was a means by which they made capital repayments. Repayments were collected and held in an account operated by PMSL’s sister company, Flexible Repayment Limited, and transferred to the customer’s lender annually.
PMSL advised about 738 customers to take out interest-only mortgages with the plan between October 2004 and November 2010.
The FSA says most customers would have been better off with a repayment mortgage.
The regulator says the firm failed to pay due regard to customers’ interests. It recommended interest-only mortgages with the plan, even though customers could have achieved the same benefits directly from the lender, without incurring the fees and charges.
When the firm went into liquidation, with FRL, customers lost about 45% of their monies held in the FRP, amounting to several hundred pounds for some.
If the firm was not in liquidation the FSA would have sought to impose a financial penalty.
Tom Spender, the FSA’s head of retail enforcement, says when brokers are making an advised sale it is imperative they consider whether the product is suitable.
He says: “Illustrations comparing the features of two or more products need to be clear and fair, and must not mislead the customer to believe one product is cheaper or better than the other, where this is not the case.
“Harrop recommended a mortgage arrangement without objectively assessing whether this arrangement was in the best interests of customers, and without making clear the limitations and cost of the arrangement. This is not good enough and he has been sanctioned appropriately.”