Equity Release Broker Fined By The FSA
The country's top financial watchdog, the Financial Services Authority (FSA) has fined a mortgage broker for breaching rules governing the sales of equity release products.
The Minel Group has been fined £10,500 by the FSA for leaving consumers at risk of being sold an equity release (lifetime) mortgage that was unsuitable. Minel, based in Newcastle Upon Tyne, has also been ordered to review the sales it made of lifetime mortgages between 9 November 2004 and 9 December 2005, and to provide compensation to customers who suffered any loss as a result of unsuitable advice. The company has also agreed to stop selling lifetime mortgages, and will concentrate on its main business of commercial and buy-to-let mortgages.
The action is the first of its kind taken by the FSA against a lifetime mortgage adviser. The action was taken after the discovery of 'persistent record keeping failures and systems and controls deficiencies' when the FSA visited the firm as part of a regular check on equity release advice. Minel had insufficient procedures with which to control the lifetime mortgage business and the provision of good quality advice. Sufficient information about personal and financial information for customers was not kept, so the firm could not establish customers' needs and objectives properly, nor demonstrate the suitability of the recommendations it was making. In addition, even though lifetime mortgages are a higher risk product, Minel had no specific training and procedures for competence for staff, nor any way of monitoring competence.
Information on customer income was inadequate to establish whether they could afford to pay interest and avoid interest mounting up. In addition, Minel didn't have any record of a customer's entitlement to means-tested benefits. If the loan was going to be for home improvements, Minel had no record of any consideration of the availability of home improvement grants.
Minel also failed to record the discussion, if any, of any alternatives to lifetime mortgages. Apparently Minel assumed that customers had already carried out their own research on lifetime mortgages and any other options. Minel recorded no information to demonstrate that a lifetime mortgage contract was the customers' best option.
Head of retail enforcement at the FSA, Georgina Philippou, said: "We remain concerned about higher risk products like lifetime mortgages, and the FSA has been monitoring this aspect of the market since mortgage regulation began. Firms must have appropriate systems and controls in place to ensure that suitable advice is given on these products even where, as in this case, a firm is writing low volumes of business. This is the first time we have taken such action against a lifetime mortgage adviser, and the combination of a fine, a past business review, and ceasing all lifetime mortgage business should leave firms in no doubt that the FSA will hold them to account if they fail to treat their customers fairly."
Minel agreed to settle early in the investigation and therefore qualified for a 30% discount of the fine under executive settlement procedures. If they had not taken that course of action, the fine would have been £15,000.
Published on October 23, 2007
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