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FSA/PN/132/2006
08 December 2006

The Financial Services Authority (FSA) has fined Home and County Mortgages Limited (HCML) £52,500 for management failures and a lack of skill, care and diligence. HCML is a mortgage intermediary which operates mainly in the right to buy market.

The FSA found that one of HCML’s advisers had inflated customers’ incomes on mortgage applications and that HCML did not act quickly and appropriately to deal with the matter. There were also weaknesses in HCML’s sales processes, including retention of customers’ income verification documents to show affordability. This put customers at risk of receiving unsuitable advice.

A further failure of HCML was not to disclose to customers the true cost of the single premium Payment Protection Insurance (PPI) policies that it recommended. The total cost of single premium PPI, including the effect of paying interest when the PPI policy premium is added to the loan, should be disclosed to customers when giving them advice to ensure their understanding of both the product and its cost.

HCML also failed to ensure in every case that staff followed its complaints handling process correctly and that all complaints were dealt with consistently.

Additionally, two of HCML’s customers were advised to enter into mortgage contracts with the principal of HCML, who was acting in his personal capacity, because no affordable contracts with authorised lenders could be found.

Jonathan Phelan, head of retail enforcement at the FSA, said:

"Inflating customers’ incomes when applying for a mortgage is unacceptable. It puts customers at risk of losing their homes if they are not able to meet their mortgage repayments. It amounts to making false declarations to lenders on behalf of customers, the consequence of which could be very serious for customers."

"We expect firms to have management controls in place to monitor their businesses effectively, and to deal effectively with misconduct by their staff, particularly where it has an impact on customers. A firm's management is responsible for ensuring that this is done and a failure to do so could show that it is not treating its customers fairly. Firms must be able to show how their recommendations are suitable and that all relevant information has been disclosed to customers. This applies to all our rules and requirements including the sale of PPI which is a priority for us due to the potential risk for consumers.

"HCML has been given a significant penalty for breaches of FSA Principles, reflecting the seriousness of the misconduct and the risks posed to its customers arising from the management failures."

FSA work on PPI published in October found that some firms selling this insurance are still failing to treat their customers fairly. Findings showed that many firms are still not giving customers clear information during the sales conversation; customers are still not being made fully aware that there may be parts of the policy under which they cannot claim; and where customers are sold single premium policies, this is not always done with the best interests of the customer in mind.

Other recent action taken against mortgage brokers includes Rainbow Homeloans, Best Advice Mortgage Network Limited, Paramjit Singh Bali, John Vincent Burton, Regency Mortgage Corporation Limited and Capital Mortgage Connections Ltd.

By agreeing to settle at an early stage of the FSA investigation the firm qualified for a 30% discount under the FSA’s Executive Settlement Scheme and the fine was reduced from £75,000 to £52,500. HCML has taken remedial steps, and the FSA also instructed the firm to employ a skilled person to review its past business to help ensure that its customers are treated fairly.

Notes to editors

1. The Final Notice is available on the FSA website.
2. Home and County Mortgage Limited is a retail mortgage firm based in Northwich, Cheshire.
3. The FSA's Payment Protection Insurance work published in October can be found in press release 104/2006.
4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.