Lenders breaking mortgage rules

Firms found breaching regulation will face action, such as fines

The City watchdog, the FSA, has found that mortgage lenders and brokers routinely fail to comply with consumer protection rules.

Under new regulations, introduced last year, firms have to give clients full details of all mortgage costs.

The Financial Services Authority said mortgage lenders or brokers breached regulations during 45 out of 82 visits made by its agents posing as clients.

The FSA said it would take enforcement action if things did not improve.

Ultimately, firms that are found to be in breach of FSA mortgage regulations could face fines.

Mystery shop

If we find that some firms continue in these failings we will take this very seriously Clive Briault, Financial Services Authority

Agents working for the FSA made 82 visits to mortgage lenders and brokers.

The mystery shoppers found that many firms were routinely failing to provide consumers with 'key facts' documents which are meant to outline mortgage costs and special clauses.

Some firms handed over the correct documentation but too late in the sales process for the liking of the FSA.

Clive Briault, FSA managing director, warned that if firms continued to breach regulations they could face action.

"These are disappointing findings...if we find that some firms continue in these failings we will take this very seriously and the appropriate action will be taken, including enforcement action if necessary," he said.

Crackdown

Regulation of the UK mortgage market passed to the FSA last year.

Lenders and brokers have to be authorised by the FSA and comply with a new set of regulations designed to protect consumers.

The regulations included:

• All borrowers must receive a Key Facts Illustration (KFI) when they apply for their mortgage. Among other things, this spells out how mortgage repayments would be affected if interest rates rose
• Lenders are barred from burying nasty surprises such as mortgage-redemption penalties in the small print. All fees, charges and penalties have to be made clear to the borrower
• Consumers who feel that they have been mis-sold to will be able to take their case to the Financial Ombudsman Service. The Ombudsman has the power to order firms to pay compensation.

In February, the FSA said that it would crackdown on brokers found to be advising consumers without proper authorisation.

Any firms found acting unlawfully could be closed down, while individuals could face criminal charges, the FSA said.