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Mortgage firms told to cut jargon

‘Consumers with lower levels of financial literacy had difficulties with KFI’

The mortgage industry has been criticised by the FSA for its poor disclosure on documentation.

It says firms are using too much jargon in key fact illustrations and this is making it difficult for the financially illiterate to understand them. It wants companies to focus on writing the KFI in plain English. The FSA says the problem applies both to standard KFIs and those used for lifetime mortgages.

The latest criticism of the market comes after the regulator’s effectiveness review of its regime in the prime sector last month which found an alarming number of advisers not handing out initial disclosure documents, with the practice particularly poor during phone sales.

In June, it reported that while overall disclosure standards are improving, 25 per cent of the KFIs reviewed that were issued by small and med- ium-sized intermediaries and small lenders still contained errors.

Research from BM Solutions has also found that many consumers do not understand industry acronyms, with 50 per cent having no idea what LTV – loan to value – means, and 42 per cent unclear what KFI stands for.

In a report prepared by BMRB Social Research, the FSA says: “Consumers with lower levels of financial literacy had difficulties with certain aspects of the KFI. These included the service being provided by the mortgage firm, insurance, early repayment and overpayments. The presentation of calculations, interest rates and the use of percentages were also problematic.

“Firms are expected to use plain English descriptions. In some instances, jargon or technical terms were used and not explained, which affected the clarity of the KFI, and hindered the consumer’s understanding of the document, irrespective of their level of financial literacy. A clear message is that firms should focus on writing plain English descriptions of their products and features.”

Hamptons International Mortgages technical director Jonathan Cornell says: “The industry gets the templates from the FSA so it has to take some responsibility.”

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