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.”