More than 200 mortgage brokers have been told by watchdogs to change misleading adverts that disguised the true cost of their fees.
The FSA may now take action against the worst offenders
The order from the Financial Services Authority (FSA) applies to sub-prime mortgages, for people with poor credit records who find it hard to get loans.
This section of the mortgage industry has been growing rapidly in the last few years.
The FSA said people were often charged more than the adverts suggested.
It said the firms with the worst advertising or promotional material were usually badly run.
"We have found that poor advertising is a sign of wider problems in the way mortgage brokers are managed and controlled," said Vernon Everitt, a senior FSA official.
"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," he warned.
After looking at the adverts and promotional material of hundreds of firms, the FSA visited the worst offenders in October and November this year.
The authority highlighted cases of misleading information, in which ads failed to state clearly the true level of fees the applicants would have to pay.
In other cases, customers were sold the expensive sub-prime mortgages, which come with high interest rates, even though the applicants did not in fact have a poor credit history.
The FSA concluded that the poor level of advertising usually indicated that the firms were often badly run with inadequate systems and controls.
Some of them are now being investigated further.
Earlier this month, the Treasury committee of MPs criticised the FSA for not following the Advertising Standards Authority's example and publishing the results of all its investigations into misleading financial advertising.
But the FSA said it had taken formal enforcement action against 12 firms in the past year, levying fines totalling more than £1.5m.