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FSA/PN/099/2007
6 September 2007

The Financial Services Authority (FSA) has fined Hadenglen Home Finance Plc (Hadenglen) £133,000, and its chief executive £49,000, for inadequate systems and controls when recommending re-mortgages and Payment Protection Insurance (PPI) to customers. This is the first time the FSA has fined both a firm and its chief executive for re-mortgage and PPI failings.

The failings were discovered as a result of the FSA's second phase of PPI work in May 2006. The FSA found that Hadenglen exposed approximately 2,000 re-mortgage and 1,900 PPI customers to the unacceptably high risk of being sold a product which was not suitable.

Hadenglen's Chief Executive Richard Hayes was responsible for the firm's business practices and for ensuring that its systems and controls for selling re-mortgages and PPI were appropriate. He implemented a sales strategy for re-mortgages without regard to the risk that customers would have to pay an early redemption charge and other fees when re-mortgaging may have been unsuitable.

Mr Hayes also failed to ensure that the sales practices for PPI were adequate. Hadenglen did not gather sufficient information from customers and did not take into account the cost of PPI when making a recommendation.

As a result re-mortgage customers incurred significant charges that may not have been in their best interests and PPI customers were advised to purchase a product that may not have been suitable for their needs or under which they were not able to claim.

Margaret Cole, FSA Director of Enforcement, said:

"Firms must develop and maintain systems and controls that minimise the risk of providing unsuitable advice to customers. The penalty imposed on Mr Hayes should leave senior management within firms in no doubt that the FSA will hold them to account if they fail to treat their customers fairly.

"PPI has been a priority for the FSA since general insurance regulation began and it continues to be a priority for us. This is the first time we have taken action against a chief executive for PPI selling failures. The significant fines imposed on both Hadenglen and Mr Hayes reflect the seriousness of their actions."

The FSA also found serious weaknesses in Hadenglen's compliance monitoring, training and competence regime, use of management information and senior management oversight of the business.

Mr Hayes has implemented a comprehensive review of systems and controls and retained external consultants to advise on this process. Hadenglen has implemented a remedial action plan for consumers which involves a customer contact exercise and redress where appropriate. Without this action the fines would have been significantly higher. In addition, Mr Hayes and Hadenglen agreed to settle at an early stage of the FSA's investigation and therefore qualified for a 30% discount under the executive settlement procedures. Without the discount the fines would have been £70,000 for Mr Hayes and £190,000 for Hadenglen.

Notes for editors

1. Hadenglen Home Finance plc is a mortgage broker based in Ashby de la Zouch, Leicestershire and Mr Hayes is the firm's Chief Executive. The Final Notices are available on the FSA website. Hadenglen's customer base for re-mortgages is typically sub-prime and therefore includes customers with low or impaired credit ratings who may find it difficult to obtain finance from traditional sources. A significant proportion of customers had previously purchased their home under the government Right to Buy scheme.
   
2. The failings concerning re-mortgaging occurred between 31 October 2004 and 15 June 2007 and the PPI failings took place between 14 January 2005 and 2 November 2006.
3. Hadenglen was one of the firms visited during the FSA's second phase of PPI work published in October 2006. The first phase of the FSA's PPI work and the Dear CEO letter concerning PPI were published in November 2005. The FSA is due to report on its latest investigations into PPI sales standards in September 2007.
4. The FSA has previously fined five firms over poor PPI selling practices – Regency Mortgage Corporation Limited £56,000 (PN 88/ 2006), Loans.co.uk £455,000 (PN 105/2006), Redcats (Brands) Limited £270,000 (PN136/2006), GE Capital Bank £610,000 (PN/015/2007) and Capital One Bank (Europe) Plc £175,000 (PN 22/2007) and has imposed a public censure on Eastern Western Motor Group (PN 137/2006) and Cathedral Motor Company Limited. Two other cases have been concluded where problems relating to PPI also featured - Capital Mortgage Connections Limited Ltd £17,500 (PN 119/2006) and Home and County Mortgages Limited £52,500 (PN 132/2006). Other PPI enforcement investigations are underway.
5. 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.
6. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.