The regulator must also encourage lending to those consumers most in need, according to Robert Sinclair, director of AFB, who argued that regulators need to encourage the reopening of lending markets to prevent people being driven to illegal lenders.
He said: "The industry has experienced extremely difficult conditions in the past 12 months, and many brokers have been forced out of the sector altogether. This is not just bad news for those businesses, it is also a problem for customers who are now unable to find credit. We ask all policy makers and regulators to be aware of this and we request their help, guidance and support in restoring capacity to the market.
"There is still a surplus of customers who want to borrow. The vast majority of these are not debt distressed individuals hooked on credit. Many are people in need of refinancing to sort out temporary cash flow problems."
AFB also welcomed assurances from Jon Pain, managing director of retail markets at the FSA, that the regulator would consider bringing second charge lending under its remit as part of its Mortgage Market Review. However, he stressed it was ultimately a decision for Government.
Robert added: "It is good news that the FSA is considering regulating the second charge lending industry. It would be seen as a positive step by consumers and consumer groups and we have campaigned for this for some time."
