Fool.co.uk: FSA’s investigation into sub-prime financial advertising

The Financial Services Authority (FSA) has told more than 200 mortgage brokers to withdraw or amend misleading advertising aimed at sub-prime customers.

These are customers who may have missed a few mortgage payments or may have County Court Judgments against them.

The FSA said financial advertising has a massive influence on the decisions that people make. This is especially so in the case of advertisements by mortgage brokers in the sub-prime market, where vulnerable people are making one of the most important decisions of their lives.

David Kuo, Head of Personal Finance at www.fool.co.uk comments: “It is not surprising that the FSA has taken a hard line against lenders flogging unsuitable products to sub-prime borrowers. This is a rapidly expanding market that has grown by an average of 18% a year since 2001, and targets some of the most susceptible people in society.

“However, many of the people who are sold sub-prime mortgages may be eligible for mainstream products.

”In fact, the sub-prime market is changing rapidly through the use of sophisticated credit-scoring techniques that have created different shades of sub-prime. It is no longer a case that someone who is not considered to be a prime borrower is immediately classified as sub-prime.

“Credit scoring now allows lenders to grade sub-prime borrowers on a sliding scale. Those with slightly blemished credit records may be classified as near-prime, and may only pay slightly more than someone with a good credit history. But at the other extreme, heavy-adverse customers, or those with a badly blemished credit history may be expected to pay more.

“Borrowers who think that their credit history may be tarnished definitely need to shop around. The growth in the market means that borrowers may get a better deal than they think if they get a second opinion.”