A recent review of a few firms operating in the first charge market has found evidence that some were charging borrowers in financial distress fees ranging from £127 up to a whopping £4,995.
The Financial Conduct Authority is clamping down on advisers after a focused review into the quality of advice given to borrowers who consolidated debt revealed abject failures across the board.
A recent review of a small number offirms operating in the first charge market has found evidence that some were charging borrowers in financial distress fees ranging from £127 up to a whopping £4,995.
In 87% of cases reviewed the regulator found that client files did not evidence suitability and that advisers were failing to meet the required standards.
Some customer files even went so far as to include disclaimers and declarations signed by the customer saying that they had made the product and transaction decisions rather than the adviser.
It is understood that one of the firms reviewed was a network.
Speaking at the Mortgage Business Expo in Leeds Lynda Blackwell, mortgage sector manager at the Financial Conduct Authority, said: “This indicates that some advisers clearly don’t understand their responsibility to their customer.”
Additionally, none of the files reviewed contained any evidence that the adviser had considered the costs associated with debt consolidation.
In a further catalogue of errors, none of the files had a clear reason for why the product recommended was the most appropriate and “many” of the files were missing evidence that the adviser had researched other options for the borrower.
The review also found that in nearly every case the client could afford to repay all debt payments without debt consolidation and repayment would have been more affordable after rescheduling the existing mortgage to a lower interest rate and lower monthly payments.
Blackwell said the failures found in the first charge market could and should be read across to the second charge market and she warned that the FCA was likely to conduct a review into compliance in the second charge market.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, hit back at Blackwell’s claims, suggesting that the “small sample” of firms investigated did not give an accurate picture of general compliance behaviour in the advice market.
He said: “I am aware that the FCA did a very focused piece of work on a small number of firms where the regulator’s desk-based research had identified potential risks to customers.
“Clearly where firms have not been able to support recommendations they have made, the FCA will take appropriate action.”
