Some bridging lenders could be forced to pay redress for loans dating back to 2004 after the FSA demanded interest that has been levied unfairly be returned to customers.
The FSA wrote to all regulated bridging lenders last month warning it suspects some are using calculations that produce an “unclear, unfair and misleading” interest rate, or produce an interest rate in the illustration that does not accurately reflect the interest charge.
It says it is concerned firms are using retained interest calculation methods that do not comply with its mortgages and home finance conduct of business rules. It has warned bridging lenders must identify and implement changes to ensure compliance with the MCOB rules and pay redress where appropriate.
Precise Mortgages managing director Alan Cleary says lenders could be forced to review business as far back as 31 October 2004, or M-Day, when the FSA took over regulation for mortgage lending, administration, advice and arranging.
He says: “The letter raises an interesting question: how far does this redress have to go back? Theoretically, to M-Day.”
Cleary estimates for an average loan size of £390,000, set over a term of eight months at 1.2 per cent per month, the potential redress could amount to £1,820 a case.
An FSA spokesman says: “We want the firms involved to take steps to identify where they are in breach and implement changes where necessary. Furthermore, if appropriate, they should pay redress to customers. We will be closely monitoring how bridging firms respond to this letter.”
L&G Mortgage Club head of mortgage products Martyn Smith says: “Any drive to bring consistency into the market, and ultimately transparency and fairness to customers, has to be positive.”
The Association of Short Term Lenders declined to comment.