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FSA bans broker for inappropriately recommending interest-only

The Financial Services Authority has publicly censured Principal Mortgage Services Limited, a mortgage broker based in Worcester, for failing to give suitable advice in relation to interest-only mortgages.

The FSA has also banned the firm’s director, Terence Harrop, from working in regulated financial services.

PMSL recommended its customers take out an interest-only mortgage with an accelerator product called the Flexible Repayment Plan.

The FRP was a means by which customers made capital repayments on their interest-only mortgages. These capital 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 approximately 738 customers to take out interest-only mortgages with the FRP during October 2004 to November 2010.  Most customers would have been better off with a straightforward repayment mortgage.

The FSA has taken action against PMSL and Harrop for failing to:

  • pay due regard to customers’ interests by recommending interest only mortgages with the FRP regardless of whether it was appropriate for the customer;
  • ensure that illustrations purporting to compare the recommended package with a repayment mortgage were clear, fair and not misleading and
  • recommending interest-only mortgages with the FRP even though customers could have achieved the same benefits directly from the lender, without incurring the fees and charges associated with the FRP.

In addition, Harrop, failed to cooperate fully with the FSA and also failed to ensure customers’ monies in the FRP were adequately protected. 

When the firm went into liquidation, along with FRL, customers lost approximately 45% of their monies held in the FRP at that time, amounting to several hundred pounds for some customers. 

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 making an advised sale it is imperative that you consider carefully whether the product you are recommending is suitable for the customer. 

“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.”



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Marketwatch – June 2012

I did say I wasn’t going to mention Europe again as I am sure we are all getting bored with it, although as I was finishing this article I got a tweet saying Spanish 10-year yields have broken through 6.9%, with Italian yields tracking them at 6.3%.


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  • Chris Gardner 20th June 2012 at 3:22 pm

    @Tim Griffiths | 18 Jun 2012 8:28 pm

    i am not sure of your point, but the possible responses you are tendering from FOS seem to be reasonable.

    There is a myth with consumers that a mis-sale must mean compo (in common parlance)

    Most interest only sales dont actually have any loss at all.

  • Tom Cleary 19th June 2012 at 10:27 am

    Surely this has more to do with the firm wanting to sell their dodgy investment plan rather than interest only???

  • Tim Griffiths 18th June 2012 at 8:28 pm

    Does this mean the FSCS will pay out the monies lost by those who took out the FRP? I wish them luck but it will be a battle. The FSCS may well say “the offer said it was interest only and you signed it”. The FSCS may well say “if you had taken out a repayment mortgage it would have cost you more so you have not incurred a loss”. The FSCS may well say “you signed the paperwork pertaining to the FRP agreeing to go ahead with it so you don’t have a claim”. The FSCS may well say “it was down to you as the customer to ultimately decide which mortgage lender and product was most suitable for your circumstances”.

  • Nigel Wood 18th June 2012 at 3:39 pm

    There is none so blind as those who cannot see…..the FSA only see what they want, I could not have put it better……….a Joke !

  • Trevor Passby 18th June 2012 at 2:37 pm

    He wasn’t banned for “innapropriately recommending int. only mortgages” …. he was banned because he set up unauthorised investment vehicles and fraudulently banked clients money. How on earth can he have done it over 700 times (nearly a decade ?) before the regulator finally did its job ? Presumably we will have to pick up the compensation tab ? Shame the regulators can’t do their prime function a bit better, but there is no incentive for them is there ?

  • so long bobby 18th June 2012 at 2:28 pm

    Go away bobby, no one wants to hear your downbeat, inaccurate and childish comments anymore.

  • Julian Sartori 18th June 2012 at 12:08 pm

    While I have no doubt the FSA have managed to rid the industry of another rotten apple, when is it going to apply similar measures to senior management of High Street banks. After all there’s only so many times that you can levy a monetary fine..

  • Bobby 18th June 2012 at 11:50 am

    How many non advised interest only deals have been arranged by the banks in the last 5 years ? Still, thats too much hard work, eh FSA, strike off another one man band, thats much easier. You are a JOKE.